Figure 11.8 Alt text for Figure 11.8: In figure 11.8, a graph comparing real GDP and price level.
Long description for Figure 11.8: The x-axis is labelled, real GDP (trillions of 2000 dollars), and the y-axis is labelled, price level (GDP deflator, 2000 = 100).3 lines are shown; AD, LRAS, SRAS.Line AD begins in the top left corner and slopes down to the bottom center.Line SRAS begins in the bottom left corner and slopes up to the top right corner.Line LRAS is perpendicular to the x-axis, and intersects the lines AD and SRAS.The point of intersection of the lines AD and SRAS is marked as A.
-Refer to Figure 11.8.In the figure above, if the economy is at point A, the appropriate monetary policy by the Bank of Canada would be to
A)lower interest rates.
B)raise interest rates.
C)lower income taxes.
D)raise income taxes.
E)increase spending.

Question

Figure 11.8  Alt text for Figure 11.8: In figure 11.8, a graph comparing real GDP and price level.
Long description for Figure 11.8: The x-axis is labelled, real GDP (trillions of 2000 dollars), and the y-axis is labelled, price level (GDP deflator, 2000 = 100).3 lines are shown; AD, LRAS, SRAS.Line AD begins in the top left corner and slopes down to the bottom center.Line SRAS begins in the bottom left corner and slopes up to the top right corner.Line LRAS is perpendicular to the x-axis, and intersects the lines AD and SRAS.The point of intersection of the lines AD and SRAS is marked as A.
-Refer to Figure 11.8.In the figure above, if the economy is at point A, the appropriate monetary policy by the Bank of Canada would be to
A)lower interest rates. 
B)raise interest rates. 
C)lower income taxes. 
D)raise income taxes. 
E)increase spending.

Quizplus · Accepted Answer

If the economy is at point A, it is below its potential output, indicating a recessionary gap. The appropriate monetary policy in this situation would be to lower interest rates to stimulate borrowing and investment, thereby increasing aggregate demand and pushing the economy towards its potential output.

Figure 118 Alt Text for Figure 11