Exhibit 15.4 -Exhibit 15.4 Depicts Short-Run Equilibrium in an Aggregate Demand-Aggregate Supply

Multiple Choice

Exhibit 15.4

-Exhibit 15.4 depicts short-run equilibrium in an aggregate demand-aggregate supply model. Which of the following policies will allow the Fed to close the GDP gap in the long run?

A) a decrease in government spending
B) a decrease in taxes
C) a purchase of U.S. government bonds (a sale would expand the economy)
D) a decrease in the discount rate (an increase would expand the economy)
E) an increase in the required reserve ratio