Assume That the Economy Starts at a 0% Output Gap

Multiple Choice

Assume that the economy starts at a 0% output gap. Now suppose that banks begin to fear the risk of default and the risk premium rises by 2%. Which of the following figures shows what happens in this scenario?
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Figure A
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Figure B
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Figure C
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Figure D

A) Figure A (no change)
B) Figure B (an upward shift of the MP curve and a new interest rate of 3%)
C) Figure C (a leftward shift of the IS curve and an output gap of -4%)
D) Figure D (an upward shift of the Phillips curve and 1% unexpected inflation)