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

question 29

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)monetary policy would ultimately lead to higher inflation and real interest rates in the long run
• B)monetary policy would ultimately lead to higher inflation and thus higher potential output
• C)monetary policy would ultimately lead to higher potential output and real interest rates but no long-run impact on inflation
• D)all of the above
• E)none of the above

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