In an AD-AS model with an upward sloping AS-curve, what would happen if oil prices increased and the Fed responded by restricting money supply?
A)real output would increase and the price level would remain the same
B)real output would remain the same but the price level would decrease
C) real output would decrease and the price level would increase sharply
D)real output would decrease and the price level would decrease sharply
E)real output would decrease but we can't tell what would happen to the price level

Question

Quizplus · Accepted Answer

An increase in oil prices shifts the AS curve left, reducing output and increasing prices. Restricting money supply shifts AD left, reducing output and prices. The net effect on the price level is uncertain.

In an AD-AS Model with an Upward Sloping AS-Curve, What