If the Bank of Canada Attempts to Continue Reducing Unemployment

question 62

Multiple Choice

If the Bank of Canada attempts to continue reducing unemployment by manipulating monetary policy, which of the following would you expect to see?

• A)The Bank of Canada's policies will be deflationary.
• B)The Bank of Canada's policies will be inflationary.
• C)The rate of inflation will fall as the Bank of Canada tries to reduce the unemployment rate.
• D)The Bank of Canada will reduce the natural rate of unemployment.
• E)The Bank of Canada will be become increasingly effective over time.

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Definitions:

Marginal Propensity

A measure of how much an individual's or household's consumption changes when their income changes by one unit.

Multiplier

In economics, it refers to the factor by which gains in total output are greater than the change in spending that caused it, often associated with fiscal policy.

Interest-earning Assets

Assets owned by a person or corporation that generate interest income.

Rate of Interest

The percentage of a sum of money charged for its use, typically expressed as an annual percentage rate.