In this situation, we want a loose money policy. To do this, we can 1) buy government securities, 2) decrease the reserve ratio, or 3) decrease the discount rate. All three of these will increase the supply of money. -If supply of money increases, then the rate of interest decreases. Then, when the rate of interest decreases, the amount of investment increases. -Then, since investment increases, aggregate expenditures (C+Ig+G+Xn) increases. That then shifts the GDP up by the change times the multiplier. Finally, when GDP increases, price level will stay about the same (since this economy most likely started in the horizontal range). Now since the GDP is increasing, we are out of a recession.