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 E₂ and the central bank chooses to sell Treasury bills:

A) AD₂ will shift to the right, causing an inflationary gap.
B) AD₂ may shift to AD₁, causing a recessionary gap.
C) SRAS₁ will shift immediately to the left, closing an inflationary gap.
D) SRAS₂ will shift immediately to the right, increasing an inflationary gap.

Correct Answer:

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