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. A) AD₂ will; the right, causing; inflationary B) AD₂ will; AD₁, causing; recessionary C) AD₁ will; AD₂, closing; recessionary D) AD₁ will; the left, increasing; recessionary

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Selling Treasury bills decreases the money supply, which shifts the aggregate demand curve from AD2 to AD1, causing a recessionary gap.

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