Given the Expected Price Level, Policies for Reaching Potential GDP

Multiple Choice

Given the expected price level, policies for reaching potential GDP will work best if the money supply is _____

A) large, so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment.
B) large enough that prices at potential GDP exceed expectations and firms can afford to hire workers.
C) small, so that prices at potential GDP fall below expectations and people can afford to buy enough goods to support the natural level of employment.
D) small, so that prices at potential GDP exceed expectations and firms can afford to hire workers.
E) exactly the size that makes prices equal to the prices people expected to prevail.