Suppose That a Central Bank Is Required to Follow a Monetary

question 10

Multiple Choice

Suppose that a central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate demand shifts right, what should the central bank do, and what will happen to output?

• A) The central bank should increase the money supply, which causes output to move closer to its long-run equilibrium.
• B) The central bank should increase the money supply, which causes output to move farther from its long-run equilibrium.
• C) The central bank should decrease the money supply, which causes output to move closer to its long-run equilibrium.
• D) The central bank should decrease the money supply, which causes output to move farther from its long-run equilibrium.

---

Definitions:

Selective Optimization

A strategy where individuals focus on maintaining or improving performance in their areas of strength while compensating for declines in other areas.

Fluid Adaptation

Refers to the ability to effectively adjust and adapt thinking and behavior to meet the demands of different situations.

Cross-modal Transference

The phenomenon by which sensory information received in one modality influences or alters perception in another modality.

Guided Competence

An educational technique where an individual's acquisition of skills is supported through directed assistance or scaffolding until mastery is achieved.