Question 03: Refer to the diagram to the right. Let's say the economy is currently at short-run equilibrium point "e" with Aggregate Demand ADO. Our original price level is Po and Real Output of GDP is Qo. If the "Fed" engages in an expansionary monetary policy shifting Aggregate Demand to AD1, then what will happen? SRAS AGGREGATE PRICE LEVEL (P) K AGGREGATE OUTPUT (Q) A) The price level will increase somewhat (some inflation) and there will also be an increase in GDP (or real output). (B) There will only be an increase in the price level (causing inflation) with no change in GDP (real output). O C) There will only be an increase in GDP with no change in the price level