Figure 11.2

-Refer to Figure 11.2..Assume the economy is in equilibrium at Ȳ₁,where real GDP equals potential GDP.The economy experiences a positive demand shock,and the Bank of Canada responds by increasing real interest rates to bring real GDP and inflation back to their original levels.Other things equal,the Bank of Canada's response following the positive demand shock is best represented by a(n)

Question

Figure 11.2

-Refer to Figure 11.2..Assume the economy is in equilibrium at Ȳ₁,where real GDP equals potential GDP.The economy experiences a positive demand shock,and the Bank of Canada responds by increasing real interest rates to bring real GDP and inflation back to their original levels.Other things equal,the Bank of Canada's response following the positive demand shock is best represented by a(n)

Quizplus · Accepted Answer

An increase in real interest rates would lead to a decrease in AD, which would cause a movement down along the Phillips curve as inflation decreases and real GDP returns to potential GDP.

Figure 11.2 -Refer to Figure 11.2..Assume the Economy Is in Equilibrium at Is