What is the definition of the output gap?
What will be an ideal response?
When there is a difference between actual GDP and potential GDP, the difference is referred to as the output gap. Underemployment, unemployment, and unused resources can contribute to the output gap. Working at a job that requires much lower skills than what you are qualified for is underemployment, which results in underutilized resources (your skills). Because your skills are not used, actual productivity is less than potential productivity, creating the output gap.
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Other things being equal, the quantity theory of money suggests that any increase in the money supply
A) results in a decrease in the aggregate price level. B) causes the aggregate level of nominal Gross Domestic Product (GDP) to fall. C) causes a reduction in the demand for money. D) results in a proportionate increase in the price level.
Suppose the Canadian central bank wants to keep the exchange rate of the Canadian dollar with the U.S. dollar constant over time. An increase in the demand for Canadian goods by American residents will lead the Canadian central bank to
A) sell American goods in exchange for Canadian dollars. B) buy more Canadian goods with Canadian dollars. C) increase the demand for Canadian dollars in the foreign exchange market. D) increase the supply of Canadian dollars in the foreign exchange market.