Suppose That the Government Implements Expansionary Fiscal Policy That Raises

Multiple Choice

Suppose that the government implements expansionary fiscal policy that raises aggregate demand,but individuals incorrectly anticipate the policy measure (bias upward) .According to new classical theory,in the short run the price level would ____________ and Real GDP would ______________.In the long run,new classical theory would predict that the price level would ______________ compared to its original long-run equilibrium level and that Real GDP would _____________.

A) rise; decline; rise; remain unchanged
B) fall; rise; rise; remain unchanged
C) rise; decline; remain unchanged; rise
D) fall; rise; remain unchanged; rise