Starting from Long-Run Equilibrium, If a Drought Pushes Up Food

Multiple Choice

Starting from long-run equilibrium, if a drought pushes up food prices throughout the economy, the Fed could move the economy more rapidly back to full employment output by:

A) increasing the money supply, but at the cost of permanently higher prices.
B) decreasing the money supply, but at the cost of permanently lower prices.
C) increasing the money supply, which would restore the original price level.
D) decreasing the money supply, which would restore the original price level.