Use the following to answer questions: -(Figure: Fiscal Policy Choices) Refer to Figure: Fiscal Policy Choices. In panel (a), the economy is initially at output level Y₁ and there is: A) an inflationary gap. B) a recessionary gap. C) equilibrium at full employment. D) no gap.

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The economy is below the potential output (YS1) which indicates a recessionary gap. Thus, expansionary fiscal policy would be the best choice to shift the aggregate demand curve to the right and close the gap.

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