Suppose That the Central Bank Must Follow a Rule That

question 16

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)increase the money supply so interest rates rise.
• B)increase the money supply so interest rates fall.
• C)decrease the money supply so interest rates rise.
• D)decrease the moneys supply so interest rates fall

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Definitions:

Behavior

The actions or reactions of an individual, often in relation to the environment or stimuli.

Convergence

The inward movement of the eyes as they focus on an object that is drawing nearer.

Visual Accommodation

The process by which the eye changes optical power to maintain a clear image or focus on an object as its distance changes.

Neonates

Newborn babies, especially those less than one month old.