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If a Central Bank Believes That an Economic Disturbance Will

Question 7

Multiple Choice

If a central bank believes that an economic disturbance will negatively affect GDP in the current quarter but will have little permanent effect, then it should


A) sharply lower interest rates to mitigate the effects of the disturbance
B) lower interest rates immediately and let financial markets know that they will be raised again next quarter
C) undertake large open market sales now with the intention of making open market purchases later on
D) sit on its hands since any policy action would destabilize the economy further
E) none of the above

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