Suppose That the Central Bank Must Follow a Rule That

question 16

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)increase the money supply so interest rates rise.
• B)increase the money supply so interest rates fall.
• C)decrease the money supply so interest rates rise.
• D)decrease the moneys supply so interest rates fall