If the economy is in an inflationary gap,the Bank of Canada should conduct _____ monetary policy to _____ aggregate demand.

Question

Quizplus · Accepted Answer

When the economy is in an inflationary gap, it means that the aggregate demand is more than the potential output of the economy. This can lead to high inflation rates if the excess demand is not curtailed. To control this situation, the Bank of Canada should introduce contractionary monetary policies, which will increase interest rates, reduce investment, and decrease overall aggregate demand. This will ultimately bring the economy back to a sustainable level of output and price stability.

If the Economy Is in an Inflationary Gap,the Bank of Canada