Assume the Aggregate Supply Curve Is Horizontal and the Economy

question 59

Multiple Choice

Assume the aggregate supply curve is horizontal and the economy is experiencing a recession.Which of the following is most likely to occur if the Fed pursues expansionary monetary policy?

• A)The equilibrium price level and output will both increase.
• B)The equilibrium price level and output will both decrease.
• C)The equilibrium price level will increase but output will stay the same.
• D)The equilibrium output will increase but the price level will stay the same until full employment is reacheD.An increase in AD along a horizontal AS curve will raise output but not prices,with the new macro equilibrium to the right of the old one.

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