Question

In the dynamic AD-AS model, which of the following is the central bank's primary policy instrument?

a. The money supply
b. The nominal interest rate
c. The real interest rate
d. The natural interest rate

Answer 1

In the dynamic AD-AS model, the central bank's primary policy instrument is the money supply. The central bank can control the money supply through open market operations.

Step-by-step explanation:

In the dynamic AD-AS model, the central bank's primary policy instrument is the money supply (option a). The central bank can control the money supply by buying or selling government bonds in open market operations, which affects the amount of money available in the economy. By increasing the money supply, the central bank can stimulate economic growth, while reducing the money supply can help combat inflation.