9. The Federal Reserve's response to an adverse supply shock The following graph shows the aggregate demand (AD) and aggregate supply (AS) curves of an economy. Initially, the economy is producing at its full employment level indicated by point A, the intersection of AD and AS. Suppose that disruptions in world oil supplies lead to escalating energy prices, shifting the economy's aggregate supply curve leftward to AS₁. PRICE LEVEL E 【D F B ΣΤΑ 2 0 3 REAL GDP AS₁ ASO AD2 AD 0 AD1 (?) Suppose that the Federal Reserve (the Fed) decides to increase the money supply in response. The Fed's decision will lead to a the aggregate demand curve. The new macroeconomic equilibrium will be at point movement along Indicate whether each statemen ble is true or false according to the previous graph. shift of Statement False The price level will increase. There will be recession but no inflation. The economy will experience inflation. The economy will experience stagflation. О O