Final answer:
To stabilize output at potential when aggregate demand increases, the central bank should use contractionary monetary policy, such as raising interest rates or selling government securities, to moderate inflation.
Step-by-step explanation:
If the aggregate demand parameter increases and the central bank wishes to stabilize output at the potential to avoid inflationary pressures, it should consider enacting a contractionary monetary policy. This could involve raising interest rates to decrease borrowing and spending or selling government securities to reduce the money supply. Contractionary policies can help slow down the economy and prevent it from overheating, which may occur when aggregate expenditure exceeds potential GDP. It's a balancing act, as the central bank must avoid triggering a recession while trying to moderate inflation.