The Federal Reserve can use expansionary or contractionary policy to shift the aggregate demand curve. Use an AD-AS graph to show how monetary policy should be used to return output to potential GDP when:
a. the aggregate demand curve intersects the short-run aggregate supply curve to the left of potential GDP. Briefly explain how the Federal Reserve would carry out this policy.
b. the aggregate demand curve intersects the short-run aggregate supply curve to the right of potential GDP. Briefly explain how the Federal Reserve would carry out this policy.