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If the Central Bank Announces a Decrease in Money Supply

Question 25

Multiple Choice

If the central bank announces a decrease in money supply but actually leaves money supply unchanged, what will happen in the short run according to the Lucas aggregate supply model?


A) output and prices will both remain unchanged
B) output will increase and prices will decrease
C) output will decrease and prices will increase
D) output and prices will both decrease
E) output will remain unchanged but prices will decrease

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