Sell treasury bills to the commercial banks

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An economy is facing the inflationary gap shown in the accompanying diagram. To eliminate the gap, should the central bank use expansionary or contractionary monetary policy? In choosing their desired policy will purchase or sell treasury bills to the commercial banks? How will the interest rate, investment spending, consumer spending, real GDP, and the aggregate price level change as monetary policy closes the inflationary gap?

Reference no: EM132601032

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