Which of the following occurs when an expansionary gap is closed in the long run by the action of firms?
A)Output decreases,and the price level increases.
B)Inflation decreases,and unemployment rises.
C)Both the equilibrium output and the price level increase.
D)Both the equilibrium output and the price level decrease.
E)Inflation rises,and unemployment decreases

Question

Quizplus · Accepted Answer

When an expansionary gap is closed in the long run by the action of firms, output decreases as the economy contracts back to its potential level, and the price level increases due to the increased demand that initially created the expansionary gap.

Which of the Following Occurs When an Expansionary Gap Is