Suppose that the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate increases and the price level increases.We can conclude that ________ has decreased 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

A decrease in aggregate supply leads to higher prices (inflation) and higher unemployment, creating a recessionary gap.

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