Assume the Economy Is Initially in Equilibrium Where Potential GDP

Multiple Choice

Assume the economy is initially in equilibrium where potential GDP is greater than real GDP.If the expected inflation rate,the term structure effect,and the default-risk premium are constant,a decrease in the Bank of Canada's target short-term nominal interest rate will ________ the MP curve and the output gap will become ________.

A) shift up; smaller
B) shift up; larger
C) shift down; smaller
D) shift down; larger