Suppose the actual and expected price levels in an economy are initially equal. However, the actual price level falls eventually due to a change in economic conditions. Which of the following will occur over the long run?
a. The economy will move rightward along the short-run aggregate supply curve.
b. The economy will move leftward along the short-run aggregate supply curve.
c. The short-run aggregate supply curve will shift to the right.
d. The short-run aggregate supply curve will shift to the left.
e. The short-run aggregate supply curve will become flatter.
Question 2
If the Fed increases the money supply, then:
a. the interest rate declines and the quantity of money demanded increases.
b. the interest rate declines and the quantity of money demanded declines.
c. the interest rate increases and the quantity of money demanded increases.
d. the interest rate increases and the quantity of money demanded declines.
e. the interest rate increases but the quantity of money demanded remains unaffected.
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