If the economy experiences simultaneous negative aggregate demand and aggregate supply shocks,and the Fed decides to intervene with expansionary policy.Aggregate demand will eventually shift back to the right,which will eventually bring the economy
A) back to potential GDP at a lower price level.
B) back to potential GDP at a higher price level.
C) back to the original equilibrium price at a lower level of aggregate output.
D) back to the original equilibrium price at a higher level of aggregate output.

Question

Quizplus · Accepted Answer

Expansionary policy by the Fed, aimed at increasing aggregate demand, can counteract the negative shocks. This will shift the aggregate demand curve back to the right, potentially restoring the economy to its potential GDP. However, the increase in demand can also lead to higher price levels, especially if the supply side remains constrained.

If the Economy Experiences Simultaneous Negative Aggregate Demand and Aggregate