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5. An economy is facing the recessionary gap shown in th accompanying diagram. To eliminate the gap, shoul the central bank use expansionary or contractionar
5. An economy is facing the recessionary gap shown in th accompanying diagram. To eliminate the gap, shoul the central bank use expansionary or contractionar monetary policy? How will the interest rate, investmen spending, consumer spending, real GDP, and the aggre gate price level change as monetary policy closes th recessionary gap? Aggregate LRAS price level SRAS E1 P1 - . . . AD1 Y1 Yp - Potential Real GDP output 6. An economy is facing the inflationary gap shown in th accompanying diagram. To eliminate the gap, shoul the central bank use expansionary or contractionar monetary policy? How will the interest rate, investmen spending, consumer spending, real GDP, and the aggre gate price level change as monetary policy closes th inflationary gap? Aggregate price LRAS level SRAS P1 . . E1 AD1 Potential Yp Y1 Real GDP output
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