5 options: In response to a positive demand shock to follow its mandate, the Fed should (raise, decrease) decrease the Federal Funds Rate (i.e., the nominal interest rate). Because inflation (does, does not) does adjust right away in the short-run, this (raises, decreases) decreases the real interest rate, R. In the IS-MP diagram, the (ISC, MPC) MPC shifts (up, down, left or right) down and the economy moves along the (ISC, MPC) ISC to (increase, decrease) decrease the output gap back to it's long-run equilibrium. The economy also moves along the ('PC only', 'OLC only', 'neither PC nor OLC' or 'PC and OLC') to bring the ('change in inflation only', 'cyclical unemployment only', 'neither change in inflation nor cyclical unemployment' or 'change in inflation and cyclical unemployment') change in inflation and cyclical unemployment back to 0%