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

Question

Quizplus · Accepted Answer

When equilibrium output is less than potential output, there is a recessionary gap. Over time, as wages and other input prices adjust downward, the short-run aggregate supply curve shifts to the right, moving the economy back towards its potential output and eliminating the recessionary gap.

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