Introduction to Economic Fluctuations - End of Chapter Problem For each shock identified below, shift the AD curve, the SRAS curve, or both to show its effects on aggregate demand and/or aggregate supply. Then move point E to the new short-run equilibrium to indicate the new price level P and output Y. Assume the economy starts out in long-run equilibrium. a. An exogenous decrease in the velocity of money. LRAS Price Level (Y) SRAS E AD Output (Y) Incorrectb. An exogenous increase in the price of oil. LRAS 10 7 Price Level (Y) E SRAS AD 2 3 4 5 7 8 10 Output (Y) Incorrectc. Now consider how the goals of the Fed influence its response to these shocks. Suppose that in scenario A, the Fed cares only about keeping the price level stable, whereas in scenario B, it cares only about keeping output and employment at their natural levels. Place scenario A and scenario B in the appropriate category describing the Fed's proper response to a decrease in the velocity of money. Increase the money supply Decrease the money supply Scenario A: Maintain the price level only Scenario B: Maintain output and employment only Answer Bankd. Now place scenario A and scenario B in the appropriate category describing the Fed's proper response to an increase in the price of oil. Increase the money supply Leave the money supply unchanged Scenario B: Maintain output and employment only Answer Bank Scenario A: Maintain the price level only