Ask Question
25 March, 03:06

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, which will move output back towards its long-run level. b. increase the money supply, which will move output farther from its long-run level. c. decrease the money supply, which will move output back towards its long-run level. d. decrease the money supply, which will move output farther from its long-run

+2
Answers (1)
  1. 25 March, 04:13
    0
    Answer: Option (c) is correct.

    Explanation:

    Correct Option: Decrease the money supply, which will move output back towards its long-run level.

    If the economy is in long run equilibrium and there is a rightward shift in the aggregate demand curve then as a result output and price level rises in an economy.

    Here, the central must follow the contractionary monetary policy to stabilize the economy.

    So, the central bank must decrease the money supply to move the output and price level back to its initial position.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “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 ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers