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Figure: Inflationary and Recessionary Gaps
-(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. The intersection of SRAS with AD in panel (a) indicates an economy:
A) in a recessionary gap.
B) in an inflationary gap.
C) in long-run equilibrium.
D) with an unusually low unemployment rate.

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Use the following to answer questions:
Figure: Inflationary and Recessionary Gaps 
-(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. The intersection of SRAS with AD in panel (a) indicates an economy:
A) in a recessionary gap. 
B) in an inflationary gap. 
C) in long-run equilibrium. 
D) with an unusually low unemployment rate.

Quizplus · Accepted Answer

The intersection of SRAS with AD in panel (a) indicates an economy in a recessionary gap. This means that the economy is producing below its potential GDP and there is excess unemployment.

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