Use the Figure Below to Answer the Following Question(s)

question 103

Multiple Choice

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 long-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 the full-employment level of output to Y₂.
• 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.

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