The lag in calculating GDP and determining GDP can cause the Bank of Canada to engage in
A)countercyclical policy.
B)procyclical policy.
C)monetary policy.
D)quantitative easing.
E)fiscal policy.

Question

Quizplus · Accepted Answer

The lag in calculating GDP and determining GDP can cause the Bank of Canada to engage in procyclical policy. Procyclical policy is a type of policy that reinforces the current business cycle rather than stabilizing it. In other words, when the economy is doing well (expansionary phase), monetary policy is relaxed, reducing interest rates and increasing the money supply, which can cause inflation. On the other hand, when the economy is contracting (recessionary phase), the monetary policy is tightened, increasing interest rates and decreasing the money supply, which can further slow down economic activity. The delay in GDP data can cause the Bank of Canada to react in a procyclical way, reinforcing ups and downs in the business cycle.

The Lag in Calculating GDP and Determining GDP Can Cause