If the Economy Is in a Long-Run Equilibrium When the Federal

Multiple Choice

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

A) it would likely conduct an easing of monetary policy by lowering the real interest rate for any given inflation rate
B) an increase in aggregate demand would ensue generating a positive output gap
C) an eventual decrease in short-run AS would drive the long-run equilibrium level of inflation up
D) all of the above
E) none of the above