8. Challenges for monetary policy The following graph shows the aggregate demand (AD) and aggregate supply (AS) curves for a hypothetical economy. Initially, the economy is operating at its full-employment level. Use the graph to help you answer the questions that follow. You can drag the curves on the graph to help you answer the questions, but you will not be scored on any changes you make to the graph. Suppose that sudden pessimism about the economic future causes entrepreneurs to reduce their borrowing and banks to reduce their lending. 300 Supply Supply PRICE LEVEL 3 10 REAL GDP (Billions of dollars) In the short run, the price level will be , and real gross domestic product (GDP) will be 5 billion. In the long run, the price level will be and real GDP will be 5 billion. Assume that the economy is still in short-run equilibrium following the sudden pessimism about the economic future. In order to bring the economy back to its full-employment level, the central bank can the money supply, which leads to a shift in the aggregate curve