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 manufacturers in China face rising costs of rubber as an input. Based on this scenario, the Chinese economy experiences:
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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) no change, as shown in Figure A.
B) a leftward shift of the IS curve and an output gap of -6%, as shown in Figure B.
C) an upward shift of the Phillips curve and 1% unexpected inflation, as shown in Figure C.
D) an upward shift of the MP curve and a new interest rate of 3%, as shown in Figure D.