Suppose That the Central Bank Is Required to Follow a Monetary

question 25

Multiple Choice

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply 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.

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Definitions:

hCG

A hormone known as Human Chorionic Gonadotropin is created by the developing embryo and subsequently by the placenta during pregnancy.

GnRH

Gonadotropin-releasing hormone, a key hormone in the control of reproductive functions, stimulating the release of other hormones from the pituitary gland.

FSH

Follicle-Stimulating Hormone, a gonadotropin released by the anterior pituitary gland that stimulates the growth of ovarian follicles in females and spermatogenesis in males.

Ovulation

The release of an egg from the ovary.