Assume That the Economy Begins in Long-Run Equilibrium

Multiple Choice

Assume that the economy begins in long-run equilibrium. Then the Fed reduces the money supply. In the short run ______, whereas in the long run prices ______ and output returns to its original level.

A) output decreases and prices are unchanged; rise
B) output decreases and prices are unchanged; fall
C) output and prices both decrease; rise
D) output and prices both decrease; fall