Holding other factors constant,a decline in incomes of Europeans will result in a ________ curve in Canada,reducing real GDP relative to potential GDP.
A) leftward shift of the IS
B) rightward shift of the IS
C) upward shift of the MP
D) downward shift of the MP

Question

Quizplus · Accepted Answer

A decline in incomes of Europeans will result in a decrease in their demand for Canadian goods and services, causing a leftward shift in the IS curve. This will lead to a decrease in the equilibrium level of output, as real GDP reduces relative to potential GDP, and thereby causing a negative output gap.

Holding Other Factors Constant,a Decline in Incomes of Europeans Will