Suppose That the Central Bank Must Follow a Rule That

question 30

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

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