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:

Engineering

The application of scientific, mathematical, and empirical evidence to design, build, and maintain structures, machines, devices, systems, and processes.

Innovation

The process of creating new ideas, products, or methods, improving on or making significant contributions to existing ones.

Small Business

Enterprises with limited revenue and number of employees, typically independently owned and operated.

Critical Mass

The minimum size or amount of resources required for a venture or process to become self-sustaining or to achieve a desired outcome.