Use the Following to Answer Questions

Multiple Choice

Use the following to answer questions .
Exhibit: Monetary Policy and Rational Expectations
-(Exhibit: Monetary Policy and Rational Expectations) 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.