Assume Policy Makers Implement Fiscal Expansion Unexpectedly

Multiple Choice

Assume policy makers implement fiscal expansion unexpectedly. Further assume that monetary policy is expected to keep interest rates constant in response to this unexpected fiscal policy. Given this information, we would expect that this will cause:

A) stock prices to rise.
B) stock prices to remain constant.
C) stock prices rise initially followed by decreases.
D) stock prices to fall.
E) an ambiguous effect on stock prices.