Starting from Long-Run Equilibrium, If a Drought Pushes Up Food

question 30

Multiple Choice

Starting from long-run equilibrium, if a drought pushes up food prices throughout the economy, the Fed could move the economy more rapidly back to full employment output by:

• A) increasing the money supply, but at the cost of permanently higher prices.
• B) decreasing the money supply, but at the cost of permanently lower prices.
• C) increasing the money supply, which would restore the original price level.
• D) decreasing the money supply, which would restore the original price level.

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Definitions:

Parabola

A symmetric curve formed by all the points at an equal distance from a point called the focus and a line called the directrix.

Upward

In a direction towards a higher position or level.

Downward

A direction toward a lower position or point.

Transformations

Operations that change the position, shape, or size of geometric figures.