When an AD shock reduces actual output to less than potential output, there is ____ output gap and the rate of inflation will tend to ____.

Name: When an AD shock reduces actual output to less than potential output, there is ____ output gap and the rate of inflation will tend to ____.
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Question

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When an aggregate demand (AD) shock reduces actual output below potential output, it creates a recessionary output gap, leading to decreased pressure on prices, which tends to lower the rate of inflation.

When an AD Shock Reduces Actual Output to Less Than