6/An economy is facing the inflationary gap shown in the accompanying diagram. To eliminate the gap, should the central bank use expansionary or contractionary monetary policy? How will the interest rate, investment spending, consumer spending, real GDP, and the aggre- gate price level change as monetary policy closes the inflationary gap? Aggregate price level LRAS SRAS P1 E1 AD1 PotentialYP Y1 output Real GDP

6/An economy is facing the inflationary gap shown in the accompanying diagram. To eliminate the gap, should the central bank use expansionary or contractionary monetary policy? How will the interest rate, investment spending, consumer spending, real GDP, and the aggre- gate price level change as monetary policy closes the inflationary gap? Aggregate price level LRAS SRAS P1 E1 AD1 PotentialYP Y1 output Real GDP

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 4CQQ

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