The Three Figures Below Show the Phases of a Disinflation

Multiple Choice

The three figures below show the phases of a disinflation.In part (i) ,the economy is experiencing a sustained inflation at E₁. FIGURE 29-4 Refer to Figure 29-4,part (iii) .Consider the recovery phase of the disinflation process when output is returning from Y₃ to Y*.Real GDP can return to potential either by ________,or by ________.

A) the AS curve falling slowly back to AS₂; further monetary contraction which shifts the AD curve to AD₂
B) the AS curve falling slowly back to AS₂; a monetary expansion which shifts the AD curve to AD₂
C) fiscal policy which causes the AS curve to shift back to AS₂; a monetary expansion which shifts the AD curve to AD₂
D) legislating a wage-and-price freeze which shifts the AS curve back to AS₂; a further contraction of monetary policy which shifts the AD curve to AD₂
E) the AS curve drifting upward to AS₃; the AD curve drifting back to AD₁