Use the Following to Answer Question 177

question 74

Multiple Choice

Use the following to answer question 177:
Figure: Short-Run and Long-Run Effects of Monetary Policy
-(Figure: Short-Run and Long-Run Effects of Monetary Policy) Look at the figure Short-Run and Long-Run Effects of Monetary Policy. If the economy is initially at E₂ and the central bank makes no change in its monetary policy:

• A)AD₂ will shift to the right, increasing the existing inflationary gap.
• B)AD₂ will shift to the left, closing the inflationary gap.
• C)SRAS₁ will eventually shift to the left, closing the existing inflationary gap but raising the aggregate price level.
• D)SRAS₂ will immediately shift to the right, increasing the existing inflationary gap.