page3 - 15. Suppose that the central bank must follow a...

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15. 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 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 further 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 further from its long-run level. 16. 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. This change in the money supply reduces the magnitude of the change in the price level a. only if the change in the price level was created by a shift in aggregate demand. b. only if the change in the price level was created by a shift in aggregate supply.
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