Suppose Government Purchases Have Decreased

Multiple Choice

Suppose government purchases have decreased. Which of the following is true?

A) If inflation is lower in the new equilibrium, the Fed has allowed the target rate of inflation to drift up.
B) If inflation is constant in the new equilibrium, the Fed has decreased the target rate of inflation.
C) If inflation is lower in the new equilibrium, the Fed has allowed the target rate of inflation to drift down.
D) If inflation is lower in the new equilibrium, there has been no change in the target rate of inflation.
E) If inflation is constant in the new equilibrium, the Fed has increased the target rate of inflation.