According to New Keynesians, Why Does an Expected Change in the Money

Multiple Choice

According to New Keynesians, why does an expected change in the money supply affect output in the short run?

A) Firms have imperfect information.
B) People expect central banks to increase the money supply in response to increases in output.
C) Many prices are set by long-term contracts and thus cannot respond quickly to increases in the money supply.
D) Prices are flexible in the short run.