Consider the impact of a reduction in money supply (M). Which of the following statements is/are true?

I. In the short run IS-LM AD-AS model with an upward-sloping SRAS curve due to nominal wage stickiness, ex post real wages will fall, which leads aggregate production to fall in the SR.

II. In the transition from the SR to the LR, expected price (P^e) will increase, which lead aggregate production to go back to its original LR level.

Select one:

A.

Only I is true.

B.

Only II is true

C.

Both I and II are true

D.

Neither I nor II is true.