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.