Suppose That the Central Bank Must Follow a Rule That

question 4

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 demand shifts right,the central bank must

• A)decrease the money supply,which shifts aggregate demand further right.
• B)decrease the money supply,which shifts aggregate demand left.
• C)increase the money supply,which shifts aggregate demand further right.
• D)increase the money supply,which shifts aggregate demand left.

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