An economy is a Dynamic AS/AD model, and the central bank raises its inflation target. Will this impact the equilibrium output gap or the inflation rate more?

The economy is an a SR and LR equilibrium at period t − 1, and at period t, the central bank raises its inflation target. Focus on the impact of this policy change in the period of the shock t. Specify the units of change, not the percentage change, in the output gap and inflation rate. Support your answer with calculations, graphs, and discussion as appropriate.

A. This policy will impact the inflation rate more IF φ > 1.

B. This policy will impact the inflation rate more IF φ < 1.

C. This policy will impact the output gap more IF θπ > θY .

D. This policy will impact the output gap more IF θπ < θY .