Use the following to answer questions: Figure: Output Gap -(Figure: Output Gap) Refer to Figure: Output Gap. If the economy is producing at Y₁, then it has a(n) _____ gap, as _____ real GDP exceeds _____ real GDP, and the Federal Reserve should use _____ monetary policy. A) inflationary; actual; potential; contractionary B) recessionary; potential; actual; expansionary C) inflationary; potential; actual; contractionary D) recessionary; actual; potential; expansionary

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If the economy is producing at Y1, then it has an inflationary gap, as actual real GDP exceeds potential real GDP, and the Federal Reserve should use contractionary monetary policy.

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