Question

If Central Bank A cares only about keeping the price level stable and Central Bank B cares only about keeping output at its natural level, then in response to an exogenous decrease in the velocity of money: a. both Central Bank A and Central Bank B should increase the quantity of money. b. Central Bank A should increase the quantity of money whereas Central Bank B should keep it stable. c. Central Bank A should keep the quantity of money stable whereas Central Bank B should increase it. d. both Central Bank A and Central Bank B should keep the quantity of money stable.

Answer 1

A) Both Central Bank A and Central Bank B should increase the quantity of money.

What is the Central Bank?

A financial institution with exclusive authority over the creation and distribution of money and credit for a country or a group of countries is known as the central bank. In contemporary economies, the central bank is typically in charge of monetary policy formulation and member bank regulation. Inherently non-market-based or even anti-competitive institutions are central banks. Many central banks, despite the fact that some have been nationalized, are not part of the government and are therefore frequently hailed as being politically independent. However, even though a central bank isn't technically the government's property, its rights are still created and safeguarded by the law.

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