Figure 32-2 Assume That a Contractionary Monetary Policy Has Shifted the Aggregate

Multiple Choice

Figure 32-2

Assume that a contractionary monetary policy has shifted the aggregate demand curve in Figure 32-2 from D₀D₀ to D₁D₁. Fiscal authorities who wish to restore real GDP to the full-employment level will

A) run a budget surplus by increasing taxes or cutting government spending.
B) run a balanced budget to prevent the interest rate from rising and cutting off investment.
C) run a budget deficit by cutting taxes or increasing government spending.
D) ignore the change in monetary policy since it has no effect on fiscal policy.