Use the following to answer questions . Exhibit: Monetary Policy and Rational Expectations -(Exhibit: Monetary Policy and Rational Expectations) Suppose the economy is operating at point a and that individuals have rational expectations. They calculate that expansionary monetary policy A) will raise the price level to P_d; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS₂. B) will raise the price level to P_c; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS₂. C) will raise the price level to P_b; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS₁. D) will keep the price level at P_a; and the short-run aggregate supply curve at AS₁.

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The Answer of Use the following to answer questions . Exhibit: Monetary Policy and Rational Expectations -(Exhibit: Monetary Policy and Rational Expectations) Suppose the economy is operating at point a and that individuals have rational expectations. They calculate that expansionary monetary policy A) will raise the price level to P_d; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS₂. B) will raise the price level to P_c; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS₂. C) will raise the price level to P_b; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS₁. D) will keep the price level at P_a; and the short-run aggregate supply curve at AS₁.

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