Suppose That the Bank of Canada Is Following a Rule

question 185

Multiple Choice

Suppose that the Bank of Canada is following a rule that takes both inflation and business cycles into account when setting the overnight rate.Also suppose that the inflation rate in the economy is 3% and the unemployment rate is 2% above the natural rate.The economy has a(n) :

• A) inflationary gap since the inflation rate is high.
• B) recessionary gap since the economy is not producing potential GDP.
• C) inflationary gap since actual real GDP exceeds potential real GDP.
• D) recessionary gap since potential real GDP exceeds actual real GDP.

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Definitions:

Western Nations

Countries located primarily in the Western Hemisphere or characterized by their adoption of Western cultural, economic, and political norms, often including Europe, North America, and parts of Oceania.

Accepted Behaviors

Accepted behaviors are actions or reactions deemed appropriate and within the norms of a society or a specific group.

Defined As Deviant

The process by which an individual's actions or behaviors are labeled by society as abnormal, immoral, or criminal.

Acceptability

The degree to which a concept, behavior, or product is considered appropriate or suitable within a social context.