If an economy is experiencing neither a recessionary gap nor an inflationary gap, the real output of the economy will be reflected by
A)the aggregate expenditure curve shifting upward.
B)the aggregate demand curve shifting to the left.
C)the aggregate supply curve shifting to the left.
D)a point to the right of the aggregate supply curve at potential GDP.
E)the intersection of the AD and AS curves at potential output.

Question

Quizplus · Accepted Answer

When an economy is experiencing neither a recessionary gap nor an inflationary gap, it is producing at its potential output level, which is represented by the intersection of the aggregate demand (AD) and aggregate supply (AS) curves. Therefore, the answer is E, the intersection of the AD and AS curves at potential output.

If an Economy Is Experiencing Neither a Recessionary Gap nor an Inflationary