Long run equilibrium-producing full employment level

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Suppose that the economy is in long run equilibrium, producing the full employment level of output. Now suppose that workers and firms come to expect the Fed to embark on expansionary policy to increase the level of output. Use the graph below to illustrate the impact of this expectation.

A. Output rises, unemployment rises, and the price level increases.

B. Output rises, unemployment falls, and the price level decreases.

C. Output falls, unemployment falls, and the price level decreases.

D. Output falls, unemployment rises, and the price level increases.

Reference no: EM13834843

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