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Figure: Monetary Policy I
-(Figure: Monetary Policy I) Refer to Figure: Monetary Policy I. If the economy is initially in equilibrium at E₂ and the central bank chooses to sell Treasury bills, _____ shift to _____ a(n) _____ gap.

Question

Use the following to answer questions:
Figure: Monetary Policy I

-(Figure: Monetary Policy I) Refer to Figure: Monetary Policy I. If the economy is initially in equilibrium at E₂ and the central bank chooses to sell Treasury bills, _____ shift to _____ a(n) _____ gap.

Quizplus · Accepted Answer

When the central bank chooses to sell Treasury bills, it decreases the money supply in the economy, which shifts the aggregate demand curve leftward from AD₂ to AD₁, causing a recessionary gap.

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