In the short run, a central bank can most easily stimulate economic activity by
A) selling government bonds to the public
B) raising interest rates to make investments more profitable
C) lowering the inflation rate though monetary restriction
D) influencing aggregate supply through monetary expansion
E) influencing aggregate demand and accepting a higher price level in the future

Question

In the short run, a central bank can most easily stimulate economic activity by
A) selling government bonds to the public 
B) raising interest rates to make investments more profitable 
C) lowering the inflation rate though monetary restriction   
D) influencing aggregate supply through monetary expansion 
E)  influencing aggregate demand and accepting a higher price level in the future

Quizplus · Accepted Answer

In the short run, a central bank can stimulate economic activity by influencing aggregate demand, often accepting a higher price level in the future as a consequence. This can be achieved through monetary expansion, such as lowering interest rates or buying government bonds, which increases the money supply and encourages spending and investment.

In the Short Run, a Central Bank Can Most Easily