Use the Following to Answer Questions

Use the following to answer questions :
Figure: Monetary Policy I
-(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E₁ and the central bank chooses to buy Treasury bills, _____ shift to _____ a(n) _____ gap.

A) AD₂ will; right, causing; inflationary
B) AD₂ may; AD₁, causing; recessionary
C) AD₁ may; AD₂, closing; recessionary
D) AD₁ will; left, increasing; recessionary

Correct Answer:

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