Suppose the economy is at full employment and theAScurve shifts up due to a permanent increase in the oil price. If the central bank does not respond to this shock, then...

a.An inflationary gap is created, which causes theAScurve to shift up again.

b.Aggregate demand shifts up and causes further inflation.

c.Prices rise and stay at the higher level with no further inflation.

d.A recessionary gap is created, which eventually causes theAScurve to shift back down.

e.A recessionary gap is created and causes a permanent reduction in employment.