Assume the Economy Is Initially in Equilibrium Where Potential GDP

Multiple Choice

Assume the economy is initially in equilibrium where potential GDP is less than real GDP.If the expected inflation rate,the term structure effect,and the default-risk premium are constant,________ in the Bank of Canada's short-term nominal interest rate will shift the MP curve up,which will result in real GDP ________.

A) an increase; falling
B) an increase; rising
C) a decrease; falling
D) a decrease; rising