A recessionary gap is usually closed in the long run by a(n):
A)rightward shift of the short-run aggregate supply curve.
B)leftward shift of the short-run aggregate supply curve.
C)rightward movement along a fixed short-run aggregate supply curve.
D)decrease in aggregate demand.
E)leftward movement along a fixed short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

A recessionary gap is typically closed in the long run by a rightward shift of the short-run aggregate supply curve, as wages and input prices adjust downward, making production more profitable at existing price levels. This adjustment mechanism increases output and employment, moving the economy back to its potential output.

A Recessionary Gap Is Usually Closed in the Long Run