Suppose That a Central Bank Is Required to Follow a Monetary

question 10

Multiple Choice

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

Group Size

The number of individuals constituting a group, affecting its dynamics and interactions.

Anonymity

The state of being anonymous, where an individual's identity is unknown or unacknowledged.

Deindividuation

A psychological state in which individuals lose their sense of self-awareness and personal responsibility in group settings, often leading to atypical behavior.

Diffusion of Responsibility

A social psychology phenomenon where individuals are less likely to take action or feel a sense of responsibility in the presence of a large group.