Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate decreases and the price level decreases.We can conclude that ________ has increased and there is now a(n)________ gap.
A)aggregate supply; inflationary
B)aggregate demand; recessionary
C)aggregate supply; recessionary
D)aggregate demand; inflationary

Question

Quizplus · Accepted Answer

Aggregate supply has increased, leading to a decrease in the price level and an increase in employment. This indicates an inflationary gap.

Suppose the Economy Is Initially in a Long-Run Macroeconomic Equilibrium