Suppose that a drought significantly reduces agricultural production one year. In addition, suppose the Fed accommodates this supply shock by implementing an expansionary monetary policy. Which of the following would you expect to occur as a result of these changes?
a. The short-run aggregate supply curve will shift to the right, the short-run Phillips Curve will shift to the left, and the accommodating monetary policy will raise inflation while lowering unemployment.
b. The short-run aggregate supply curve will shift to the right, the short-run Phillips Curve will shift to the left, and the accommodating monetary policy will increase unemployment while lowering inflation.
c. The short-run aggregate supply curve will shift to the left, the short-run Phillips Curve will shift to the right, and the accommodating monetary policy will raise inflation while lowering unemployment.
d. The short-run aggregate supply curve will shift to the left, the short-run Phillips Curve will shift to the right, and the accommodating monetary policy will increase unemployment while lowering inflation.
c
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