Suppose the AD curve and the SRAS curve intersect to the left of the LRAS curve.Which of the following is true?
A) The economy is in a recessionary gap.
B) The economy is in an inflationary gap.
C) The economy is in a long-run equilibrium.
D) This situation is actually impossible.

Question

Quizplus · Accepted Answer

When the AD curve and the SRAS curve intersect to the left of the LRAS curve, it indicates that the economy is producing below its potential output level. This means that there is a shortfall in aggregate demand relative to aggregate supply, leading to unemployment and underutilization of resources. This situation is known as a recessionary gap.

Suppose the AD Curve and the SRAS Curve Intersect to the Left