Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. In panel (a), an expansionary policy designed to move the economy from Y₁ to Y_p would attempt to shift the: A) aggregate demand curve to the left by increasing aggregate demand. B) aggregate demand curve to the right by increasing aggregate demand. C) SRAS curve to the left. D) LRAS curve to the left.

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In panel (a), the economy is experiencing an inflationary gap (Y₁), where aggregate demand exceeds aggregate supply at potential output level YS1. To move the economy to the potential output level, an expansionary policy is needed, which involves increasing aggregate demand. Therefore, the correct answer is B, as an expansionary policy would attempt to shift the aggregate demand curve to the right, towards potential output level Y_p.

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