To achieve long-run equilibrium in an economy with a recessionary gap,output will __________ and the inflation rate will _________.
A) increase;increase
B) increase;decrease
C) increase;not change
D) decrease;decrease
E) decrease;increase

Question

Quizplus · Accepted Answer

In a recessionary gap, output is below potential output and the inflation rate is below the target rate. To achieve long-run equilibrium, output must increase and the inflation rate must also increase to reach the target rate.

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