Final answer:
The short-run aggregate supply curve assumes that wages are based on the expectation that the current price level will persist, but with rational expectations and flexible wages and prices, any impact on output and employment is temporary, and the long-term effects are limited to price level changes.
Step-by-step explanation:
The short-run aggregate supply curve is based on the assumption that firms and workers have established nominal wages with the expectation that the current price level will persist. This assumption underpins various economic models, including the neoclassical and Keynesian perspectives on how the economy responds to changes in aggregate demand.
According to the theory of rational expectations, businesses and workers anticipate the effects of monetary policy on price levels. In a situation where there's an increase in the money supply, they expect that nominal wages should rise accordingly to match the anticipated increase in the price level.
Therefore, the aggregate supply curve would immediately shift in response to these adjusted expectations. In the long run, however, the impact of changes in aggregate demand on output and unemployment is only temporary, with real GDP and aggregate supply ultimately determining the size of the economy.
When wages and prices are flexible, and economic actors have rational expectations, short-run fluctuations in aggregate demand lead to immediate adjustments in price levels without extended periods of increased output or employment.
Therefore answer is b. the current price level will persist.