Suppose the economy's short-run equilibrium point is to the left of the Natural Real GDP.Which of the following is true?

Question

Quizplus · Accepted Answer

If the economy's short-run equilibrium point is to the left of the Natural Real GDP, it means that the actual output of the economy is lower than its potential output. This situation is known as a recessionary gap, which is characterized by high unemployment and low inflation. In order to reach the long-run equilibrium, the economy needs to increase its aggregate demand to shift the short-run aggregate supply curve to the right, ultimately reaching the potential output level.

Suppose the Economy's Short-Run Equilibrium Point Is to the Left