An economy adjusts on its own to close an inflationary gap because there is
A) pressure on nominal wages to fall and this shifts the SRAS curve rightward.
B) pressure on nominal wages to rise and this shifts the SRAS curve rightward.
C) pressure on nominal wages to fall and this shifts the SRAS curve leftward.
D) pressure on nominal wages to rise and this shifts the SRAS curve leftward.

Question

Quizplus · Accepted Answer

In an inflationary gap, the economy is producing beyond its potential output, leading to upward pressure on nominal wages. As wages rise, production costs increase, causing the Short-Run Aggregate Supply (SRAS) curve to shift leftward, reducing output and closing the gap.

An Economy Adjusts on Its Own to Close an Inflationary