Starting from a long run steady state equilibrium, significant increase in individual income taxes was announced. In the long run after market adjustments the economy will A. experience a small deflation but aggregate output returns to the potential output level.
B. experience a small inflation but aggregate output returns to the potential output level.
C. experience a large inflation but aggregate output remains less than the potential output level.
D. experience a large deflation but aggregate output remains less than the potential output level.