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assume the economy is currently experiencing an inflationary gap or expansion . using a graph explain...

assume the economy is currently experiencing an inflationary gap or expansion . using a graph explain how econmy can return to full employment in the long run without any government inventions
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In above picture's diagram initially the economy is at point a. Where the economy faces inflationary gap (Y1 - Y) situation. At point a the price level is also high. This increase the production cost. Hence producers decrease their production level which decrease the aggregate supply of the economy. This shift the short run aggregate supply curve from SRAS to SRAS1. As a result, the economy reach at point b where the full employment occurs. Thus, without government intervention the economy reach at full employment output level from inflationary gap situation.

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