If the short-run aggregate supply increases by less than the long-run aggregate supply, then, at the short-run equilibrium,
A)GDP will be below potential GDP.
B)aggregate demand will increase.
C)GDP will be above potential GDP.
D)GDP will be equal to potential GDP.
E)unemployment will fall.

Question

Quizplus · Accepted Answer

If short-run aggregate supply increases by less than the long-run aggregate supply, it means that the economy is not producing at its potential. This implies that GDP will be below potential GDP, and there will be a recessionary gap. Therefore, the best choice is A. Aggregate demand might or might not increase, depending on other factors affecting the economy. GDP will not be above potential GDP because the economy is not producing at its full capacity. Unemployment may or may not fall, depending on the specific circumstances of the economy.

If the Short-Run Aggregate Supply Increases by Less Than the Long-Run