Starting from Long-Run Equilibrium in the Dynamic Model of Aggregate

Multiple Choice

Starting from long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, output immediately decreases as a result of a one-period positive supply shock because:

A) the central bank raises the nominal and real interest rates in response to the increase in inflation.
B) the higher prices generate a negative demand shock that reduces output.
C) the natural level of output falls in response to the increase in inflation.
D) the central bank increases the target rate of inflation in response to the increase in inflation.