Which of the following is true of an expansionary gap?
A)It develops when the expected price level exceeds the actual price level.
B)In the long run,this gap will close when resource suppliers negotiate lower resource payments.
C)It measures the amount by which actual output falls short of the economy's potential.
D)In the long run,this gap will close when the short-run aggregate supply curve shifts rightward.
E)In the long run,this gap will close when resource suppliers negotiate higher resource payments.

Question

Quizplus · Accepted Answer

In the long run, an expansionary gap will close when resource suppliers negotiate higher resource payments, leading to increased costs and a leftward shift in the short-run aggregate supply curve, reducing output to potential levels.

Which of the Following Is True of an Expansionary Gap