Question: Choose the correct answer.

Suppose the economy is at the natural level of output. The Government implements CFP policy (G ). The CB does not agree with government policy, so the CB immediately implements the EMP (MS ) to completely eliminate the impact of CFP on output, which will lead to:

a) Output increases in the short term, interest rates remain constant in the medium term, and prices rise in the medium term.

b) Constant output in the short term, interest rates falling in the medium term, and prices rising in the medium term.

c) Constant output in the short term, interest rates fall in the medium term.

d) Constant output in the short term, constant interest rates in the medium term, and rising prices in the medium term.

Please also explain the answer.