To achieve long-run equilibrium in an economy with an expansionary 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 the long run, to close an expansionary gap, output will decrease as the economy returns to its potential output, and the inflation rate will increase due to upward pressure on prices from the initial excess demand.

To Achieve Long-Run Equilibrium in an Economy with an Expansionary