If Potential Output Equals 4,000 and Short-Run Equilibrium Output Equals

Multiple Choice

If potential output equals 4,000 and short-run equilibrium output equals 3,500, there is a ________ gap and the Federal Reserve must ________ real interest rates in order to close the gap.

A) recessionary; raise
B) recessionary; reduce
C) recessionary; not change
D) expansionary; raise