Assume That Policy Makers Implement Fiscal Contraction Unexpectedly

Multiple Choice

Assume that policy makers implement fiscal contraction unexpectedly. Further assume that there is no expected monetary policy response to this unexpected fiscal policy. Given this information, we would expect that this will:

A) always cause stock prices to fall.
B) cause no changes in stock prices.
C) tend to cause stock prices to fall if the LM curve is very steep.
D) tend to cause stock prices to fall if the LM curve is very flat.
E) always cause stock prices to rise.