Refer to the Accompanying Figure

Multiple Choice

Refer to the accompanying figure. Starting from long-run equilibrium at point C, a favorable inflation shock that decreases inflation from π to π¹ will lead to a short-run equilibrium at point ________ and eventually to a long-run equilibrium at point ________, if left to self-correcting tendencies.

A) A; B
B) A; C
C) B; A
D) B; C