Suppose the economy is initially in the medium run equilibrium. Then the government implements a contractionary fiscal policy by reducing government spending. If the level of expected inflation is formed so equals to t-1, what should the central bank do in order to restore the inflation rate back to its original value?

a. The central bank needs to increase output to potential output so that inflation can return to its original value

b. The central bank needs to create negative output gap so that inflation can return to its original value The central bank needs to create a positive output gap so that inflation can be increased to its original value

d. All of the answers here are incorrect

e. The central bank has to reduce output to potential output so that inflation can be reduced to its original value