If the short-run macroeconomic equilibrium is to the _____ of the economy's potential output, then there is a(n) _____ gap and the aggregate price level is expected to _____.
A) right; inflationary; fall
B) right; recessionary; rise
C) left; inflationary; fall
D) left; recessionary; fall

Question

Quizplus · Accepted Answer

If the short-run macroeconomic equilibrium is to the left of the economy's potential output, then there is a recessionary gap and the aggregate price level is expected to fall. Option A is incorrect because if the equilibrium is to the right of potential output, there is an inflationary gap and the aggregate price level is expected to rise. Option B is incorrect as it has the direction of the gap wrong. Option C is incorrect as it combines an incorrect direction of the gap with an incorrect expectation for the aggregate price level.

If the Short-Run Macroeconomic Equilibrium Is to the _____ of the Economy's