If u=7% and u*=4%, which of the following would be appropriate move by the Central Bank that targets money supply? I strongly advise you to graph this before choosing the answer.

Select one:

a.

Increase MS, lower i, causing C, I and NX to increase and the recessionary gap to close.

b.

Reduce MS, increase i, causing C, I and NX to decrease and the recessionary gap to close.

c.

Reduce MS to shift AS right and speed up the natural adjustment.

d.

Reduce MS, increase i, causing C, I and NX to decrease and the inflationary gap to close.

e.

Increase MS, lower i, causing C, I and NX to increase and the inflationary gap to close.