Fill in the blanks to make the following statements correct. a. Suppose the economy is initially at
Question:
Fill in the blanks to make the following statements correct.
a. Suppose the economy is initially at potential GDP \(\left(Y^{*}ight)\) and then there is a sudden increase in the demand for Canadian exports. The \(A D\) curve shifts to the _______ and opens a(n) __________gap.
b. With an inflationary gap, the economy is operating where GDP is above _________ \(\longrightarrow\) In an effort to maintain the output gap, the Bank of Canada may choose to validate the inflation by __________ the interest rate and allowing the money supply to _________ The actual inflation rate will ___________.
c. The alternative policy response to an inflationary gap is to not validate the inflation. The ___________curve stops shifting upward. The ___________ curve shifts upward due to rising wages caused by \(\longrightarrow\)____________. Real GDP eventually returns to __________ at a higher _______________.
d. Sustained inflation can be said to be a(n) _____________ phenomenon.
e. Reducing a sustained inflation requires that monetary __________ be stopped. Inflation will persist, however until ____________ of continued inflation are revised downward.
f. The cost of disinflation is the cost of the_____________ that is generated in the process.
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