The aggregate demand-aggregate supply model shows that closing an expansionary gap involves deflation and closing a recessionary gap involves inflation.

Question

Quizplus · Accepted Answer

Closing an expansionary gap involves decreasing aggregate demand, which can be achieved through fiscal or monetary policy, without necessarily causing deflation. Similarly, closing a recessionary gap involves increasing aggregate demand, which can lead to inflation, but not necessarily.

The Aggregate Demand-Aggregate Supply Model Shows That Closing an Expansionary