Which of the following situations is one in which the Bank of Canada will potentially pursue expansionary monetary policy?
A)Potential GDP is forecasted to be higher than equilibrium GDP.
B)Potential GDP is forecasted to be lower than equilibrium GDP.
C)Aggregate demand is growing too fast to keep the economy at full employment.
D)Aggregate demand is growing too slowly and the economy is in danger of producing GDP above potential GDP.
E)The unemployment rate has fallen below its natural rate.

Question

Quizplus · Accepted Answer

When potential GDP is forecasted to be higher than equilibrium GDP, it indicates that the economy is not operating at full capacity, suggesting a recessionary gap. The Bank of Canada may pursue expansionary monetary policy to stimulate demand and move the economy towards its potential GDP.

Which of the Following Situations Is One in Which the Bank