An expansionary gap is closed in the long run by a(n):
A)rightward shift of the short-run aggregate supply curve.
B)leftward shift of the short-run aggregate supply curve.
C)movement to the right along a fixed short-run aggregate supply curve.
D)increase in aggregate demand.
E)decrease in aggregate demand.

Question

Quizplus · Accepted Answer

An expansionary gap is a situation where aggregate demand exceeds the potential output of an economy, leading to rising prices and output. In the short run, this can be addressed by an increase in aggregate supply, which can be achieved through factors such as higher employment and production. However, in the long run, the economy will return to its potential output level, and this can only be achieved through a leftward shift of the short-run aggregate supply curve, which represents a decrease in the economy's ability to produce output. This can be caused by factors such as a decrease in the capital stock, a decrease in technological progress, or a decrease in the number of workers in the economy. Therefore, the correct answer is B, a leftward shift of the short-run aggregate supply curve.

An Expansionary Gap Is Closed in the Long Run by A(n)