Refer to Figure 1 Below

Multiple Choice

Refer to figure 1 below. If the vertical distance labelled Z represents a deflationary gap then which of the following statements is true? Figure 1

A) Y₂ represents the full employment level of output and total expenditure must be reduced from C+I+G+(X-M) ₂ to C+I+G+(X-M) ₁ in order to increase output and employment.
B) Y₁ represents the full employment level of output and total expenditure must be reduced from C+I+G+(X-M) ₂ to C+I+G+(X-M) ₁ in order to increase output and employment.
C) Y₂ represents the full employment level of output and total expenditure must be increased from C+I+G+(X-M) ₁ to C+I+G+(X-M) ₂ in order to increase output and employment.
D) Y₁ represents the full employment level of output and total expenditure must be increased from C+I+G+(X-M) ₁ to C+I+G+(X-M) ₂ in order to increase output and employment.