Which of these changes is observed in an economy when a recessionary gap is closed in the long run?
A)An increase in the inflation rate and a decrease in the unemployment rate
B)An increase in the level of output and a decrease in the price level
C)An increase in both the rate of output and the price level
D)A decrease in both the rate of output and the price level
E)A decrease in the inflation rate and an increase in the unemployment rate

Question

Quizplus · Accepted Answer

Closing a recessionary gap in the long run is achieved through an increase in potential output or productive capacity. This results in an increase in output and a decrease in the price level. There is no necessary change in the inflation rate or the unemployment rate.

Which of These Changes Is Observed in an Economy When