If Central Bank a Cares Only About Keeping the Price

question 34

Multiple Choice

If Central Bank A cares only about keeping the price level stable and Central Bank B cares only about keeping output at its natural level, then in response to an exogenous increase in the price of oil:

• A)both Central Bank A and Central Bank B should increase the quantity of money.
• B)Central Bank A should increase the quantity of money, whereas Central Bank B should keep it stable.
• C)Central Bank A should decrease the quantity of money, whereas Central Bank B should increase it.
• D)both Central Bank A and Central Bank B should keep the quantity of money stable.

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Definitions:

Total Risk

The complete range of uncertainties including market, credit, liquidity, and operational risks that can affect the performance and valuation of investments.

Portfolio Concentration

The over-representation of a particular asset class, sector, or stock within an investment portfolio, leading to heightened risk.

Treasury Bills

Short-term government securities issued at a discount from the face value and mature in a year or less, representing a secure investment.

Long-term Bonds

are bonds that mature over a period typically longer than ten years, offering a fixed interest rate over their life span.