Suppose That Consumer and Business Confidence Fall

Multiple Choice

Suppose that consumer and business confidence fall. What is the ultimate outcome for the economy if monetary policymakers respond to keep inflation on an unchanged target?

A) If monetary policymakers respond, output would remain close to potential output.
B) If monetary policymakers respond, output would fall below potential output.
C) If monetary policymakers respond, output would rise above potential output.
D) If monetary policymakers respond, output would remain close to potential output but inflation would still rise despite their actions.