Given Keynesian Assumptions About the Shape of the Aggregate Supply

Given Keynesian assumptions about the shape of the aggregate supply curve and an economy suffering a recession,which of the following is most likely to occur if the Fed pursues expansionary monetary policy?

A) The equilibrium price level and output will both increase until full employment is reached.
B) The equilibrium price level and output will both decrease.
C) The equilibrium price level will increase but output will stay the same.
D) The equilibrium output will increase but the price level will stay the same until full employment is reached.

Correct Answer:

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