Starting from Long-Run Equilibrium in the Dynamic Model of Aggregate

question 13

Multiple Choice

Starting from long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, a permanent reduction in the central bank's inflation target causes the nominal interest rate to:

• A) decline continuously until reaching a lower level in the long run.
• B) increase initially and then decline until reaching a lower level in the long run.
• C) decline immediately to a lower level in the long run.
• D) fall below and then rise continuously to long-run level below the initial level.

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Restaurant

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A card issued to individuals that allows them to borrow funds, usually at point of sale, with the promise to repay.