Expansionary output gaps are eliminated through
A) rising inflation and higher real interest rate settings by the Bank of Canada.
B) rising inflation and lower real interest rate settings by the Bank of Canada.
C) falling inflation and lower real interest rate settings by the Bank of Canada.
D) falling inflation and higher real interest rate settings by the Bank of Canada.
E) unchanging inflation and lower real interest rate settings by the Bank of Canada.

Question

Quizplus · Accepted Answer

Expansionary output gaps lead to rising inflation, prompting the Bank of Canada to increase real interest rates to cool down the economy and eliminate the gap.

Expansionary Output Gaps Are Eliminated Through