Figure 11.17 Alt text for Figure 11.17: In figure 11.17, a graph comparing real GDP and price level.
Long description for Figure 11.17: The x-axis is labelled, real GDP (trillions of 2007 dollars).The y-axis is labelled, price level (CPI, 2002 = 100).7 lines are shown; SRAS1, SRAS2, AD1, AD without policy, AD with policy, LRAS1, and LRAS2.Line SRAS1 begins near the bottom left corner and slopes up to the top right corner.Line SRAS2 follows the same slope as line SRAS1, but is plotted to the right.Line AD1 begins at the top left corner and slopes down to the end of the x-axis.Lines AD without policy, and AD with policy, follow the same slope as line AD1, but are plotted to the right.Lines LRAS1 and LRAS2 are perpendicular to the x-axis such that line LRAS2 is to the right of line LRAS1.Line LRAS1 intersects lines AD1 and SRAS1 at point A.Lines AD without policy, and SRAS2 intersect at point B.Line LRAS2 intersects the lines AD with policy, and SRAS2 at point C.
-Refer to Figure 11.17.In the figure above, suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B.Which of the following policies could the Bank of Canada use to move the economy to point C?
A)decrease income taxes
B)increase the desired reserve ratio
C)buy government securities
D)sell government securities
E)buy Canadian dollars on the foreign exchange market

Question

Figure 11.17  Alt text for Figure 11.17: In figure 11.17, a graph comparing real GDP and price level.
Long description for Figure 11.17: The x-axis is labelled, real GDP (trillions of 2007 dollars).The y-axis is labelled, price level (CPI, 2002 = 100).7 lines are shown; SRAS1, SRAS2, AD1, AD without policy, AD with policy, LRAS1, and LRAS2.Line SRAS1 begins near the bottom left corner and slopes up to the top right corner.Line SRAS2 follows the same slope as line SRAS1, but is plotted to the right.Line AD1 begins at the top left corner and slopes down to the end of the x-axis.Lines AD without policy, and AD with policy, follow the same slope as line AD1, but are plotted to the right.Lines LRAS1 and LRAS2 are perpendicular to the x-axis such that line LRAS2 is to the right of line LRAS1.Line LRAS1 intersects lines AD1 and SRAS1 at point A.Lines AD without policy, and SRAS2 intersect at point B.Line LRAS2 intersects the lines AD with policy, and SRAS2 at point C.
-Refer to Figure 11.17.In the figure above, suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B.Which of the following policies could the Bank of Canada use to move the economy to point C?
A)decrease income taxes 
B)increase the desired reserve ratio 
C)buy government securities 
D)sell government securities 
E)buy Canadian dollars on the foreign exchange market

Quizplus · Accepted Answer

Buying government securities is a monetary policy tool used by central banks to increase the money supply, which can stimulate economic activity and move the economy towards a point like C, which typically represents higher output or lower unemployment.

Figure 1117 Alt Text for Figure 11