Figure 104

-Refer to Figure 10 $\hat{Y}$ ₁,And Real GDP Increases So the Output Gap Increases To Equilibrium

Multiple Choice

Figure 10.4

-Refer to Figure 10.4...Suppose the economy's equilibrium starts out with an output gap of $\hat{Y}$ ₁,and real GDP increases so the output gap increases to $\hat{Y}$ ₂.If the Bank of Canada acts to keep the short-term nominal interest rate at the target and the term structure effect,the default-risk premium,and the expected inflation rate remain constant,then the long-term nominal interest rate will

A) increase.
B) decrease.
C) remain constant.
D) be indeterminate, since the Bank of Canada has no control over long-term rates.