Suppose That the Central Bank Must Follow a Rule That

question 91

Multiple Choice

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, what must the central bank do, and what will happen to output?

• A) The central bank must decrease the money supply, which will move output back toward its long-run level.
• B) The central bank must decrease the money supply, which will move output farther from its long-run level.
• C) The central bank must increase the money supply, which will move output back toward its long-run level.
• D) The central bank must increase the money supply, which will move output farther from its long-run level.

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Definitions:

Axillae

The underarm area of the body, where the arm connects to the shoulder, containing sweat glands and lymph nodes.

Inguinal Area

The region of the lower abdomen just above the groin, where the leg meets the torso, often associated with hernias.

Lymph Nodes

Small, bean-shaped structures that are part of the lymphatic system and function as filters for harmful substances.

Migraine Headaches

A type of headache characterized by intense, pulsing or throbbing pain, often accompanied by nausea, vomiting, and sensitivity to light and sound.