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.
a
You might also like to view...
The difference between the pretax and posttax return to an economic activity is known as the
A) tax multiplier. B) net tax. C) tax burden. D) tax wedge.
The Fed conducts open market operations with the primary goal of
A) affecting the federal funds rate. B) affecting the discount rate. C) stabilizing the foreign-exchange market. D) adjusting reserve requirements.
When comparing industries, a monopolistically competitive industry is less competitive than an oligopoly.
Answer the following statement true (T) or false (F)
Which of the following would not increase labor productivity, ceteris paribus?
A. An increase in the number of participants in the labor force. B. Management training. C. Human capital investment. D. An increase in the quality of capital.