Question: Price stability: Suppose you are the head of the central bank and your mandate is to maintain the price level at a constant value. Explain what you would do to the money supply in response to each of the following events:
(a) Real GDP increases by 4% during a boom.
(b) Real GDP declines by 1% during a recession.
(c) Real GDP is growing at 3% per year.
(d) The velocity of money increases by 2%.
(e) The velocity of money declines by 1%.