Refer to the Graph Above

Multiple Choice

Refer to the graph above. Assume that the economy is initially in equilibrium at the intersection of AD₁ and AS₁. Suppose that there is economic growth which shifts AS₁ to AS₂. If the application of a monetary rule is designed to shift AD₁ to AD₃, but because of pessimistic business expectations AD₁ only shifts to AD₂, then mainstream economists would suggest that the actions to be taken to avoid deflation would be to implement a(n) :

A) Expansionary fiscal policy and a tight money policy
B) Contractionary fiscal policy and a tight money policy
C) Expansionary fiscal policy and an easy money policy
D) Contractionary fiscal policy and an easy money policy