To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the inflation rate must:
A)increase.
B)decrease.
C)not change.
D)either increase or decrease depending on the relative shifts of AD and AS.

Question

Quizplus · Accepted Answer

If the inflation rate falls on its own due to flexible wages and prices, stabilization policy may not be needed, so long as this decrease in inflation happens quickly.

To Achieve Long-Run Equilibrium in an Economy with a Recessionary