. An economy is facing the recessionary gap shown in the accompanying diagram. To eliminate the gap, should the central bank use expansionary or contraction- ary monetary policy? How will the interest rate, investment spending, consumer spending, real GDP, and the aggregate price level change as monetary policy closes the recessionary gap? LRAS Aggregate price level SRAS E1 P1 `AD, Y1 Yp- Potential Real GDP output

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