9. Stagflation occurs when prices and output A) fall; falls B) fall; increases C) rise; falls D) rise; increases 10. The dilemma facing the Federal Reserve in the event that an unfavorable supply shock moves the economy away from the natural rate of output is that monetary policy can either return output to the natural rate, but with a price level, or allow the price level to return to its original level, but with a level of output in the short run. A) higher; higher B) higher; lower C) lower; lower D) lower; higher