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 permanent reduction in the central bank's inflation target, the DAS shifts downward because:

A) the natural level of output increases in response to the lower rates of inflation.
B) the deviation of output from the natural level of output increases as a result of lower rates of inflation.
C) lower rates of inflation generate negative supply shocks.
D) expectations of inflation decrease as a result of lower inflation in previous periods.