If the Bank of Canada keeps the real interest rate constant,the recovery of a weak housing market would cause the ________,and the output gap would ________.
A) MP curve to shift up; become less negative
B) MP curve to shift down; become more negative
C) IS curve to shift to the left; become more negative
D) IS curve to shift to the right; become less negative

Question

Quizplus · Accepted Answer

A recovery in the housing market increases investment and consumption, shifting the IS curve to the right, which reduces the output gap, making it less negative.

If the Bank of Canada Keeps the Real Interest Rate