Use the following to answer questions: -(Figure: Short-Run Equilibrium) Refer to Figure: Short-Run Equilibrium. If the economy is at equilibrium at Y₁ and P₁, it is in a(n): A) recessionary gap. B) inflationary gap. C) high level of unemployment. D) liquidity trap.

Question

Quizplus · Accepted Answer

The economy is at equilibrium at Y₁ and P₁, which means that the aggregate demand (AD) curve intersects the aggregate supply (AS) curve at that point. If the economy is at equilibrium, it is not in a recessionary gap or an inflationary gap. A recessionary gap occurs when the AD curve is below the AS curve, and an inflationary gap occurs when the AD curve is above the AS curve. Therefore, the correct answer is B) inflationary gap.

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