Given an upward-sloping aggregate supply curve,which of the following is most likely to occur if the Fed pursues restrictive monetary policy,ceteris paribus?
A) The equilibrium price level and output will both decrease.
B) The equilibrium price level and output will both increase.
C) The equilibrium price level will decrease but output will stay the same.
D) The equilibrium output will decrease but the price level will stay the same.

Question

Quizplus · Accepted Answer

With an upward-sloping aggregate supply curve, a restrictive monetary policy would lead to a decrease in aggregate demand. This would cause a decrease in both the equilibrium price level and output. This is because the decrease in aggregate demand would lead to a decrease in both the quantity of output demanded and the price level, as firms reduce their prices in response to lower demand.

Given an Upward-Sloping Aggregate Supply Curve,which of the Following Is