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-(Figure: The Great Disinflation)Refer to Figure: The Great Disinflation.In the early 1980s,the inflation rate was beaten down by the Bank of Canada's tight monetary policy.In the short run this policy led to a _____ level of actual output and a _____ rate of unemployment.

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-(Figure: The Great Disinflation)Refer to Figure: The Great Disinflation.In the early 1980s,the inflation rate was beaten down by the Bank of Canada's tight monetary policy.In the short run this policy led to a _____ level of actual output and a _____ rate of unemployment.

Quizplus · Accepted Answer

The figure shows that the inflation rate decreased from around 13% in 1981 to around 4% in 1984, indicating that the Bank of Canada's tight monetary policy was successful in beating down inflation. However, the decrease in inflation also led to a decrease in actual output (GDP), as seen by the negative output gap in the figure. This suggests that the economy was operating below its potential, which typically leads to higher unemployment. Therefore, the correct answer is choice B: low level of actual output and high rate of unemployment.

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