Suppose That the Central Bank Must Follow a Rule That

question 35

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 will move output back towards its long-run level.
• B)decrease the money supply,which will move output farther from its long-run level.
• C)increase the money supply,which will move output back towards its long-run level.
• D)increase the money supply,which will move output farther from its long-run level.

---

Definitions:

Accounts Receivable

Accounts receivable represents money owed to a company by its customers for goods or services delivered but not yet paid for, classified as a current asset on the balance sheet.

Transfer Prices

Prices used for transactions between divisions of the same company, often used for budgeting and taxation purposes.

Actual Costs

The real costs incurred by a business, including all expenses related to production, operation, and maintenance.

Standard Costs

Predetermined costs for materials, labor, and overhead used in budgeting and assessing performance by comparing them to actual costs.