Figure 12.3

-Refer to Figure 12.3. Suppose the economy is initially at full employment with real GDP equal to potential GDP,and the Bank of Canada does not target interest rates,allowing the real interest rate to change like it did during the Great Depression.This would be reflected as a movement from ________ in the IS-MP model and ________ the Phillips curve.

Question

Figure 12.3

-Refer to Figure 12.3. Suppose the economy is initially at full employment with real GDP equal to potential GDP,and the Bank of Canada does not target interest rates,allowing the real interest rate to change like it did during the Great Depression.This would be reflected as a movement from ________ in the IS-MP model and ________ the Phillips curve.

Quizplus · Accepted Answer

According to Figure 12.3, a movement from point X to point Y would represent a decrease in real GDP and an increase in the unemployment rate, which would correspond to a movement down the Phillips curve. This would happen in a situation where the real interest rate is allowed to increase, leading to a reduction in investment and aggregate demand. Therefore, option B is the best choice.

Figure 12.3 -Refer to Figure 12.3. Suppose the Economy Is Initially at Economy