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 increase in the price of oil:
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 decrease the quantity of money, whereas Central Bank B should increase it.
D)both Central Bank A and Central Bank B should keep the quantity of money stable.

Question

Quizplus · Accepted Answer

Central Bank A would decrease the quantity of money to counteract inflation from the oil price increase, while Central Bank B would increase it to support output.

If Central Bank a Cares Only About Keeping the Price