If aggregate demand increases by the amount of the recessionary GDP gap and aggregate supply is upward-sloping,

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When aggregate demand increases by the amount of the recessionary GDP gap, it will close the gap, but not bring the economy to full employment. This is because the upward-sloping aggregate supply curve indicates that as output increases, production costs will also increase, leading to higher prices and a decrease in the quantity of goods and services supplied. Therefore, the new equilibrium will still be below full employment, and a recessionary GDP gap will still exist. An AD surplus may occur in the short run, but in the long run the economy will adjust to the new equilibrium. An inflationary GDP gap will not develop because output will still be below potential.

If Aggregate Demand Increases by the Amount of the Recessionary