According to the Keynesian-cross analysis, if MPC stands for marginal propensity to consume, then a rise in taxes of delta T will: decrease equilibrium income by delta T/(1 – MPC). not affect equilibrium income at all. decrease equilibrium income by delta T. decrease equilibrium income by (delta T)(MPC)/(1 – MPC). A supply shock does not occur when: unions push wages up. the Fed increases the money supply. an oil cartel increases world oil prices. a drought destroys crops. If the short-run aggregate supply curve is horizontal and the long-run aggregate supply curve is vertical, then a change in the money supply will change in the short run and change in the long run. both prices and output; both prices and output only prices; only output only output; only prices both prices and output; only prices Starting from long-run equilibrium, an increase in aggregate demand increases in the short run, but only increases in the long run. the money supply; the natural rate of output output; prices prices; output short-run aggregate supply; long-run aggregate supply Starting from long-run equilibrium, without policy intervention, the long-run impact of an adverse supply shock is that prices will: be permanently higher and output will be permanently lower. be permanently higher and output will be restored to the natural rate. return to the old level, but output will be permanently lower. return to the old level and output will be restored to the natural rate.