In the case of a negative shock to aggregate demand,the central bank should:
A) decrease the rate of growth of the money supply to control inflation.
B) increase the rate of growth of the money supply to restore spending growth.
C) decrease the rate of growth of the price level to keep real growth high.
D) do nothing.

Question

Quizplus · Accepted Answer

In case of a negative shock to aggregate demand, there is a possibility of a decrease in spending growth or economic output, which can further lead to lower prices and deflationary pressure. To counter this situation, the central bank can increase the rate of growth of the money supply to restore spending growth and stimulate economic activity. Therefore, option B is the best choice.

In the Case of a Negative Shock to Aggregate Demand,the