Recessionary 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 higher real interest rate settings by the Bank of Canada.

Question

Quizplus · Accepted Answer

Recessionary output gaps are eliminated through falling inflation and lower real interest rate settings by the Bank of Canada. Lowering the real interest rate encourages borrowing and investment, which increases demand and stimulates economic growth. Additionally, falling inflation reduces the cost of borrowing and increases consumers' purchasing power, which also helps drive economic expansion.

Recessionary Output Gaps Are Eliminated Through