Suppose the short-run AS curve is given by:

(t) = (t-1) + (t)

If there is a temporary (one-period) favourable inflation shock ( < 0), in the short-run;

A. The inflation rate will increase for one-period and then immediately return to its pre-shock value.

B. The inflation rate will decrease for one-period and then immediately return to its pre-shock value.

C. The inflation rate will increase when the shock occurs and remain at a new higher level

D. The inflation rate will decrease when the shock occurs and remain at a new lower level

E. None of the above