Table 11.4
-Refer to Table 11.4.Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2017 and in 2018 if the Bank of Canada does not use monetary policy.If the Bank of Canada uses monetary policy successfully to keep real GDP at its potential level in 2018, which of the following will be lower than if the Bank of Canada had taken no action?
A)real GDP and the unemployment rate
B)real GDP and the inflation rate
C)real GDP and potential GDP
D)potential GDP and the inflation rate
E)the employment population ratio and potential GDP

Question

Table 11.4 
-Refer to Table 11.4.Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2017 and in 2018 if the Bank of Canada does not use monetary policy.If the Bank of Canada uses monetary policy successfully to keep real GDP at its potential level in 2018, which of the following will be lower than if the Bank of Canada had taken no action?
A)real GDP and the unemployment rate 
B)real GDP and the inflation rate 
C)real GDP and potential GDP 
D)potential GDP and the inflation rate 
E)the employment population ratio and potential GDP

Quizplus · Accepted Answer

If the Bank of Canada successfully uses monetary policy to keep real GDP at its potential level in 2018, the inflation rate will be lower than if no action was taken. This means choice B is the correct answer. Real GDP will not be lower because monetary policy is successful in maintaining it at the potential level, potential GDP will not be lower because it is the same in both scenarios, and the employment population ratio is not mentioned in the table and therefore cannot be compared. The unemployment rate may also not be lower since it is not explicitly linked with monetary policy action in this context.

Table 11.4 -Refer to Table 11.4.Consider the Hypothetical Information in the Table