If the economy is experiencing an inflationary output gap,the adjustment process operates as follows:
A)wages do not adjust,but the AD curve shifts to the right.
B)wages fall,unit costs fall,and the AD curve shifts rightward.
C)wages rise,unit costs rise,and the AS curve shifts leftward.
D)wages rise,unit costs rise,and the AS curve shifts rightward.
E)wages fall,unit costs fall,and the AS curve shifts rightward.

Question

Quizplus · Accepted Answer

When there is an inflationary output gap, wages tend to rise due to increased demand for labor, leading to higher unit costs. This causes the Aggregate Supply (AS) curve to shift leftward, reducing output back towards potential GDP.

If the Economy Is Experiencing an Inflationary Output Gap,the Adjustment