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Figure: Shifts in SRAS and AD
-(Figure: Shifts in SRAS and AD)If the economy is at short-run equilibrium point b because of a negative supply shock,the Fed may focus on price stability and enact a restrictive monetary policy,thus shifting the new equilibrium to point _____.As a result of this,the price level would _____ and real output would _____.
A) a;decrease to the previous level;further decrease
B) c;further increase;increase
C) d;decrease;increase
D) No monetary policy would have any effect;the equilibrium would remain at point b.

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Figure: Shifts in SRAS and AD 
-(Figure: Shifts in SRAS and AD)If the economy is at short-run equilibrium point b because of a negative supply shock,the Fed may focus on price stability and enact a restrictive monetary policy,thus shifting the new equilibrium to point _____.As a result of this,the price level would _____ and real output would _____.
A) a;decrease to the previous level;further decrease 
B) c;further increase;increase 
C) d;decrease;increase 
D) No monetary policy would have any effect;the equilibrium would remain at point b.

Quizplus · Accepted Answer

If the Fed enacts a restrictive monetary policy, it would shift the AD curve to the left to a new equilibrium point a. This would result in a decrease in the price level and a further decrease in real output.

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