Given Keynesian Assumptions About the Shape of the Aggregate Supply

question 85

Multiple Choice

Given Keynesian assumptions about the shape of the aggregate supply curve and an economy suffering 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 until full employment is reached.
• 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.

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