Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. If the economy is in short-run equilibrium at Y₁ in panel (a), to return to potential output at Y_P policy makers should use: A) contractionary policy. B) expansionary policy. C) policies to shift the SRAS to the left. D) policies to shift the LRAS to the left.

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If the economy is in short-run equilibrium at a level of output lower than the potential output (indicating a recessionary gap), policymakers should use expansionary policy to increase aggregate demand, moving the economy back to its potential output level.

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