Suppose the Canadian Economy Is Producing at the Natural Rate

Multiple Choice

Suppose the Canadian economy is producing at the natural rate of output. A depreciation of the Canadian dollar will cause ________ in real GDP in the short run and ________ in the inflation rate in the long run, everything else held constant. (Assume the depreciation causes no effects in the supply side of the economy.)

A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease