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Figure: Monetary Policy I
-(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E₁ and the central bank chooses to buy Treasury bills, _____ shift to _____ a(n) _____ gap.

Question

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

-(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E₁ and the central bank chooses to buy Treasury bills, _____ shift to _____ a(n) _____ gap.

Quizplus · Accepted Answer

When the central bank buys Treasury bills, it increases the money supply, which can shift the aggregate demand curve (AD) from AD1 to AD2, closing a recessionary gap.

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