Final answer:
The correct answer is option 5, 'b and d', meaning that the actual shift rightward in the AD curve due to expansionary monetary policy by the Fed will be greater than the anticipated shift, and it will raise real GDP in the short run.
Step-by-step explanation:
When the economy is in long-run equilibrium and the Federal Reserve (the Fed) increases the money supply, we would expect an expansionary monetary policy to shift the aggregate demand (AD) curve to the right. If such a policy action was anticipated but with a downward bias, two possible scenarios emerge:
- If market participants expect a greater increase in the money supply than the Fed actually introduces, the perceived shift in the AD curve would be greater than the actual shift. However, this is not one of the options provided.
- If market participants underestimate the increase in the money supply, the actual shift in the AD curve will be greater than the perceived shift. This aligns with option 2 but contradicts the premise that the policy measure is anticipated with a bias downward, as a downward bias would typically suggest a smaller perceived shift.
However, as the policy is expansionary, we can assert that the AD curve will not shift leftward as option 3 states. Also, typically, an expansionary monetary policy is expected to raise real GDP in the short run as per option 4. Considering the context presented, the most accurate response would be option 2 (the actual shift rightward in the AD curve will be greater than the perceived shift) along with option 4 (expansionary monetary policy will end up raising real GDP in the short run). Therefore, option 5, 'b and d', is the correct choice.