Draw Two SP Curves Intersecting LP;call the Upper Intersection Point

Multiple Choice

Draw two SP curves intersecting LP;call the upper intersection point A and the lower point B.The Fed promises to reduce inflation while maintaining natural unemployment.If the public believes the Fed,the economy moves from ________.Then if the Fed turns out to be time-inconsistent,breaking its promise and trading off ________ inflation for lower unemployment,the public revises the way it forms inflation expectations so that in the long run the economy stays at ________.

A) A to B,lower,B which is superior to A
B) A to B,higher,A which is inferior to B
C) A to B,lower,A which is superior to B
D) B to A,higher,B which is superior to A
E) B to A,lower,B which is inferior to A