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Exhibit: The Inflation-Unemployment Cycle
-(Exhibit: The Inflation-Unemployment Cycle) If the economy were experiencing a recessionary gap, it would be at the intersection of short-run aggregate supply and aggregate demand at point(s):
A) 1 only.
B) 1 or 2.
C) 3 only.
D) 4.

Question

Use the following to answer questions .
Exhibit: The Inflation-Unemployment Cycle 
-(Exhibit: The Inflation-Unemployment Cycle) If the economy were experiencing a recessionary gap, it would be at the intersection of short-run aggregate supply and aggregate demand at point(s):
A) 1 only. 
B) 1 or 2. 
C) 3 only. 
D) 4.

Quizplus · Accepted Answer

In a recessionary gap, aggregate demand is less than short-run aggregate supply, causing output to be below potential. This occurs at either point 1 or point 2 in the exhibit, where the short-run aggregate supply intersects with the aggregate demand line. Therefore, the best choice is B, as the economy would be at either point 1 or point 2 in a recessionary gap.

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