If the Economy Is in a Long-Run Equilibrium When the Federal

question 31

Multiple Choice

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

• A)it would likely conduct an easing of monetary policy by lowering the real interest rate for any given inflation rate
• B)an increase in aggregate demand would ensue generating a positive output gap
• C)an eventual decrease in short-run AS would drive the long-run equilibrium level of inflation up
• D)all of the above
• E)none of the above

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