The Dilemma Facing the Federal Reserve in the Event That

question 63

Multiple Choice

The dilemma facing the Federal Reserve in the event that an unfavorable supply shock moves the economy away from the natural rate of output is that monetary policy can either return output to the natural rate, but with a ______ price level, or allow the price level to return to its original level, but with a ______ level of output in the short run.

• A) higher; higher
• B) higher; lower
• C) lower; lower
• D) lower; higher