In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y ? 20,000r, the interest rate is currently 2 percent (0.02). If potential output equals 8,000, the central bank must ________ the interest rate to close the ________ gap.
A. raise; recessionary
B. lower; expansionary
C. raise; expansionary
D. lower; recessionary
Answer: C
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