The different shapes of the aggregate supply curve:
A) Determine the level of reserves held by the banking system.
B) Result in the Fed's need for total control of the money supply.
C) Determine the impact of monetary policy on price level and output.
D) Explain why the Fed must respond to market instability.

Question

Quizplus · Accepted Answer

The different shapes of the aggregate supply curve determine the impact of monetary policy on the price level and output. For example, if the curve is vertical in the long run, monetary policy cannot affect output in the long run but only the price level. The Fed must adjust its policy accordingly to achieve its objectives. The level of reserves held by the banking system, the Fed's need for total control of the money supply, and the need to respond to market instability are related to monetary policy implementation but not directly related to the shape of the aggregate supply curve.

The Different Shapes of the Aggregate Supply Curve