(a) Using a graph showing aggregate demand, short-run aggregate supply, and long-run aggregate supply, illustrate an economy that faces an inflationary gap. (b) Explain how the inflationary gap can be eliminated and evaluate the possibilities.

Question

(a) Using a graph showing aggregate demand, short-run aggregate supply, and long-run aggregate supply, illustrate an economy that faces an inflationary gap.  (b) Explain how the inflationary gap can be eliminated and evaluate the possibilities.

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The Answer of (a) Using a graph showing aggregate demand, short-run aggregate supply, and long-run aggregate supply, illustrate an economy that faces an inflationary gap.  (b) Explain how the inflationary gap can be eliminated and evaluate the possibilities.

(A) Using a Graph Showing Aggregate Demand, Short-Run Aggregate Supply