Use the following to answer questions:
-(Figure: Output Gap) Refer to Figure: Output Gap.If the economy is producing at Y₁,then it has a(n) _____ gap,as _____ real GDP exceeds _____ real GDP,and the Bank of Canada should use _____ monetary policy.

Question

Use the following to answer questions:

-(Figure: Output Gap) Refer to Figure: Output Gap.If the economy is producing at Y₁,then it has a(n) _____ gap,as _____ real GDP exceeds _____ real GDP,and the Bank of Canada should use _____ monetary policy.

Quizplus · Accepted Answer

The economy is producing at Y1, which is above the potential GDP (Yp). This means that there is an inflationary gap, as actual real GDP exceeds potential real GDP. To reduce the inflationary gap, the Bank of Canada should use contractionary monetary policy.

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