Refer to the graph shown. Suppose the economy is initially at A but then the Fed adopts a contractionary monetary policy. Using the standard AS/AD model reasoning, this policy will cause the economy to move to:
A. B in the short run and the long run.
B. C in the short run and A in the long run.
C. C in the short run and E in the long run.
D. A in the short run and the long run.
Answer: C
Economics
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