Suppose the economy is experiencing an inflationary gap. Which of the following describes a likely policy response by the Bank of Canada?
A) A contractionary monetary policy which leads to a lower interest rate, reduced investment demand, and a shift to the left of the AD curve.
B) A contractionary monetary policy which leads to a reduction in investment demand, and a shift to the left of the AD curve.
C) An expansionary monetary policy which leads to an increase in investment demand, and a shift to the right of the AD curve.
D) An expansionary monetary policy which leads to a decrease in investment demand, and a shift to the left of the AD curve.
E) A contractionary monetary policy which leads to an increase in investment demand, and a shift to the right of the AD curve.
Correct Answer:
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