If Potential Output Equals 4,000 and Short-Run Equilibrium Output Equals

question 90

Multiple Choice

If potential output equals 4,000 and short-run equilibrium output equals 3,500,there is a ______ gap and the Bank of Canada must ________ real interest rates in order to close the gap.

• A) recessionary;raise
• B) recessionary;lower
• C) recessionary;not change
• D) expansionary;raise
• E) expansionary;lower

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Definitions:

Adjusting Entries

Journal entries made at the end of an accounting period to allocate income and expenditures to the period in which they actually occurred.

Interest-Bearing Note

A debt instrument that pays interest to the holder until its maturity.

Accrual of Interest

The recording of interest that has been earned but not yet paid or received in cash.

Stockholders' Equity

The owners' equity in a corporation, representing the residual assets of the company that would be due to stockholders after discharging all liabilities.