Question

Assume an economy is at​ long-run equilibrium. An inflationary gap results when the A. aggregate demand...

Assume an economy is at​ long-run equilibrium. An inflationary gap results when the

A.

aggregate demand curve shifts rightward and generates a movement along the​ short-run aggregate supply curve.

B.

aggregate demand curve shifts leftward and generates a movement along the​ long-run aggregate supply curve.

C.

aggregate demand curve shifts leftward and generates a movement along the​ short-run aggregate supply curve.

D.

aggregate demand curve shifts rightward and generates a movement along the​ long-run aggregate supply curve.

Homework Answers

Answer #1

ANswer
Option A.

The aggregate demand curve shifts rightward and generates a movement along the short-run aggregate supply curve.

An inflationary gap is where potential output is less than the actual output. It is possible at the right of the long run supply curve, and that increase is possible when AD shifts right from long-run equilibrium.

A left shift of AD from long-run equilibrium is the recessionary gap, and if the long run AS also moves with it then its long-run equilibrium.

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