Figure 14.3 -Refer to Figure 14.3.Suppose the Economy Is Initially at Long-Run

Multiple Choice

Figure 14.3

-Refer to Figure 14.3.Suppose the economy is initially at long-run equilibrium and the Bank of Canada increases the target inflation rate,and to hit this rate,it must reduce the real interest rate.The economy then reaches a new,short-run equilibrium point.Assuming expectations are adaptive,the next movement will result in the economy reaching a new,long-run equilibrium at

A) point A.
B) point B.
C) point C.
D) point D.