-Refer to the graph in the exhibit.How would long-run equilibrium be established, assuming no government intervention?
A) by an increase in short-run aggregate supply to remove the expansionary gap
B) by a decrease in short-run aggregate supply to remove the expansionary gap
C) by a decrease in short-run aggregate supply to remove the recessionary gap
D) by an increase in short-run aggregate supply to remove the recessionary gap

Question

-Refer to the graph in the exhibit.How would long-run equilibrium be established, assuming no government intervention?  
A) by an increase in short-run aggregate supply to remove the expansionary gap 
B) by a decrease in short-run aggregate supply to remove the expansionary gap 
C) by a decrease in short-run aggregate supply to remove the recessionary gap 
D) by an increase in short-run aggregate supply to remove the recessionary gap

Quizplus · Accepted Answer

In the long run, if there is a recessionary gap, the short-run aggregate supply will increase as wages and resource prices adjust downward, moving the economy back to full employment equilibrium.

-Refer to the Graph in the Exhibit