Beginning at Long-Run Equilibrium in the Dynamic Model of Aggregate

Multiple Choice

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the periods after a multiperiod positive demand shock occurs, the DAS shifts upward because:

A) the central bank increases the target rate of inflation in response to higher rates of inflation.
B) the deviation of output from the natural level of output increases as result of higher rates of inflation.
C) higher rates of inflation generate positive supply shocks.
D) expectations of inflation increase as a result of higher inflation in previous periods.