Use the following to answer questions . Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) At output level Y_K, A) the economy is not in equilibrium because it operates with an output gap. B) the economy is in short-run equilibrium and it operates with an inflationary gap. C) the economy is in short-run equilibrium and it operates with a recessionary gap. D) the economy is not in equilibrium because the unemployment rate is below the natural rate of unemployment.

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At output level Y_K, the economy is in short-run equilibrium as AD and AS intersect at the same level of output. The economy operates with a recessionary gap because the equilibrium output level is below the potential output level, indicating idle resources in the economy.

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