The Federal Reserve’s Dilemma When Responding to a Real Shock (1) A real shock shifts the long-run aggregate supply (LRAS) curve to the left, moving the economy from point a to a recession at point b. If the Federal Reserve concentrates on the higher inflation rate, it may decide to reduce AD, with a cut in , moving the economy to point c with a lower inflation rate but an even lower growth rate. Note that for clarity we have suppresed the old SRAS curve running through point a.