Use the figure below to answer the following question(s) .
Figure 14-5
-In Figure 14-5, AD1 and SRAS1 indicate an economy initially operating at full-employment output level, Y1. The short-run impact of the Fed unexpectedly shifting to a more restrictive monetary policy will be
A) a decrease in aggregate demand to AD2 and a decrease in real output to Y2.
B) a decrease in aggregate demand to AD2 but real output would remain at Y1.
C) a decrease in aggregate demand to AD2 and an increase in short-run aggregate supply to SRAS2, causing the price level to fall to P3 and real output to remain unchanged at Y1.
D) no change; AD and SRAS will stay at AD1 and SRAS1.
Correct Answer:
Verified
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