Based on the figure below. Starting from long-run equilibrium at point C, an adverse inflation shock that increases inflation from πto π¹ will lead to a short-run equilibrium at point ___ creating _____gap. A) A; an expansionary B) A; a recessionary C) B; a recessionary D) B; an expansionary

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An adverse inflation shock is modeled as an upward shift of the SRAS curve. In the short run, this results in higher inflation and lower output. This new short-run equilibrium will exist at point A, where the economy is experiencing a recessionary gap.

Based on the Figure Below