If potential output is less than actual output, eventually the short-run aggregate supply curve will shift:
A)up and eliminate the recessionary gap.
B)down and eliminate the recessionary gap.
C)up and eliminate the inflationary gap.
D)down and eliminate the inflationary gap.

Question

Quizplus · Accepted Answer

When potential output is less than actual output, it indicates an inflationary gap. To eliminate this gap, the short-run aggregate supply curve will shift up, making goods and services more expensive and thus slowing down the economy to match the potential output.

If Potential Output Is Less Than Actual Output, Eventually the Short-Run