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.


b

Economics

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Suppose a banking system has $200 million in deposits, a required reserve ratio of 10 percent, and total bank reserves of $35 million. Then the potential increase in deposit creation for the whole banking system is equal to

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