Assume a Central Bank Follows a Rule That Requires It

question 25

Multiple Choice

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged,then

• A)the central bank would have to raise interest rates which would decrease output.
• B)the central bank would have to raise interest rates which would increase output.
• C)the central bank would have to reduce interest rates which would decrease output.
• D)the central bank would have to reduce interest rates which would increase output.

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