Suppose That the Central Bank Must Follow a Rule That

question 7

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 supply shifts left,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.

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Definitions:

Moral Code

A set of principles or ethics that govern the behavior of individuals or groups based on notions of right and wrong.

Price Discrimination

The practice of selling the same product to different customers at different prices, often based on factors like quantity purchased, customer type, or market location.

Core Principles

Core principles or standards that act as the underlying basis for a system, organization, or person's behavior and choices.