The three figures below show the phases of a disinflation. In part i) , the economy is experiencing a sustained inflation at E 1.
FIGURE 29-4
-Refer to Figure 29-4, part iii) . Consider the recovery phase of the disinflation process when output is returning from Y3 to Y*. Real GDP can return to potential either by , or by .
A) the AS curve falling slowly back to AS2; further monetary contraction which shifts the AD curve to AD2
B) the AS curve falling slowly back to AS2; a monetary expansion which shifts the AD curve to AD2
C) fiscal policy which causes the AS curve to shift back to AS2; a monetary expansion which shifts the AD curve to AD2
D) legislating a wage-and-price freeze which shifts the AS curve back to AS2; a further contraction of monetary policy which shifts the AD curve to AD2
E) the AS curve drifting upward to AS3; the AD curve drifting back to AD1
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