Use the Following to Answer Questions

question 63

Multiple Choice

Use the following to answer questions .
Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply
-(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply) If the economy is at point b, the Federal Reserve can close the output gap

• A) by pursuing an expansionary monetary policy to raise the interest rate and decrease short-run aggregate supply.
• B) by pursuing a contractionary monetary policy to drive down the interest rate and decrease aggregate demand.
• C) by pursuing an expansionary monetary policy to drive down the interest rate and decrease short-run aggregate supply.
• D) by pursuing a contractionary monetary policy to raise the interest rate and reduce aggregate demand.

---

Definitions:

Real Income

The amount of goods and services that can be purchased with nominal income during some period of time; nominal income adjusted for inflation.

Increase in Price

A rise in the cost of goods or services, often due to factors like inflation, increased demand, or production costs.

Budget Line

A graphical representation of all possible combinations of two goods that can be purchased with a given budget at set prices.

Fixed Money Income

An income level that remains constant and does not adjust for inflation or economic conditions.