Use the "Monetary Policy I" Figure 31-5. If the money and the central bank chooses to buy bonds, then: AD2 will shift to the right, creating an inflationary gap. AD2 may shift to AD₁, creating a recessionary gap. AD₁ may shift to AD2, closing an existing recessionary gap... AD₁ will shift to the left, increasing an existing recessionam AD2 will shift to the right, creating a recessionary gap.
Use the "Monetary Policy I" Figure 31-5. If the money and the central bank chooses to buy bonds, then: AD2 will shift to the right, creating an inflationary gap. AD2 may shift to AD₁, creating a recessionary gap. AD₁ may shift to AD2, closing an existing recessionary gap... AD₁ will shift to the left, increasing an existing recessionam AD2 will shift to the right, creating a recessionary gap.
Chapter14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, And Sources Of Business Cycles
Section: Chapter Questions
Problem 8E
Related questions
Question
![Figure 31-5: Monetary Policy I
Aggregate
price
level, P
P₂
P₁
E₁
LRAS
E₂
SRAS
AD₂
AD₁
Y₁ YE potential Real GDP
output
Use the "Monetary Policy I" Figure 31-5. If the money market is initially at E2
and the central bank chooses to buy bonds, then:
AD2 will shift to the right, creating an inflationary gap.
AD2 may shift to AD₁, creating a recessionary gap.
AD₁ may shift to AD2, closing an existing recessionary gap.
AD₁ will shift to the left, increasing an existing recessionary gap.
AD2 will shift to the right, creating a recessionary gap.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6c692a49-9425-4bdf-b0fa-872e0eef16fa%2Ff4c37ae2-7e6c-410e-b348-0d6071cea8d6%2Fmunjo1_processed.png&w=3840&q=75)
Transcribed Image Text:Figure 31-5: Monetary Policy I
Aggregate
price
level, P
P₂
P₁
E₁
LRAS
E₂
SRAS
AD₂
AD₁
Y₁ YE potential Real GDP
output
Use the "Monetary Policy I" Figure 31-5. If the money market is initially at E2
and the central bank chooses to buy bonds, then:
AD2 will shift to the right, creating an inflationary gap.
AD2 may shift to AD₁, creating a recessionary gap.
AD₁ may shift to AD2, closing an existing recessionary gap.
AD₁ will shift to the left, increasing an existing recessionary gap.
AD2 will shift to the right, creating a recessionary gap.
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