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.

---

Definitions:

Nikolai Bukharin

Was a Soviet politician and Marxist theoretician, a prominent figure in the Bolshevik Revolution who later became a victim of Stalin's Great Purge.

French Popular Front

A coalition of leftist parties in France during the 1930s, known for implementing social reforms and labor laws.

1930s

Denotes the decade encompassing the years from 1930 to 1939, marked by the Great Depression, the rise of fascism, and the approach of World War II.

Italian Economy

Refers to the economic structure and performance of Italy, characterized by a diversified industrial base, developed agricultural sector, and prominent global trading activities.