Figure 11-6 -Refer to Figure 11-6. Suppose the Economy Is Operating at Is

Multiple Choice

Figure 11-6
-Refer to Figure 11-6. Suppose the economy is operating at point a and that individuals have rational expectations. They calculate that expansionary monetary policy

A) will raise the price level to P_d; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS₂.
B) will raise the price level to P_c; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS₂.
C) will raise the price level to P_b; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS₁.
D) will keep the price level at P_a; and the short-run aggregate supply curve at AS₁.