If the short-run aggregate supply curve intersects the aggregate demand curve to the right of the long-run aggregate supply curve, then the economy has _____ gap, and the government can close the gap by _____ transfer payments.

Question

Quizplus · Accepted Answer

When the short-run aggregate supply curve intersects the aggregate demand curve to the right of the long-run aggregate supply curve, it indicates an inflationary gap. To close this gap, the government can decrease transfer payments, which reduces aggregate demand, helping to bring the economy back to its long-run equilibrium.

If the Short-Run Aggregate Supply Curve Intersects the Aggregate Demand