-Refer to Exhibit 16-8

Multiple Choice

-Refer to Exhibit 16-8.Assume that the starting point is point 1.Suppose that the Fed implements expansionary monetary policy that raises aggregate demand.Which of the following best goes with the diagram shown?

A) New classical theory with policy incorrectly anticipated,bias downward
B) New classical theory with policy incorrectly anticipated,bias upward
C) Real business cycle theory
D) New classical theory with policy unanticipated
E) Policy ineffectiveness proposition (PIP)