An economy is facing the inflationary gap shown in the accompanying diagram. To eliminate the gap, should the central bank use expansionary or contractionary monetary policy? How will the interest rate, investment spending, consumer spending, real GDP, and aggregate price level change as the monetary policy closes the inflationary gap?© BrainMass Inc. brainmass.com October 9, 2019, 9:11 pm ad1c9bdddf
The central bank can use contractionary monetary policy to eliminate the inflationary gap. The central bank could engage in an open-market sale of ...
Inflationary gap is examined.