If Central Bank a Cares Only About Keeping the Price

question 44

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 keep the quantity of money stable 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:

Net Income

The amount of money a company retains after subtracting all expenses and taxes from its gross revenue.

Retained Earnings

The portion of net income left over for the business after it has paid out dividends to its shareholders.

Fiscal Year

A 12-month period used for accounting purposes and preparing financial statements.

Depreciation Expense

The allocation of the cost of tangible assets over their useful lives, reflecting the reduction in value over time.