As a contractionary gap is closed in the long run by firms' actions,
A)nominal and real GDP both decline
B)nominal and real GDP both increase
C)nominal GDP increases but real GDP declines
D)nominal GDP declines but real GDP increases
E)real GDP increases,but nominal GDP can increase,decrease,or remain the same

Question

Quizplus · Accepted Answer

In the long run, as firms adjust to a contractionary gap, real GDP increases to its potential level. Nominal GDP can vary depending on changes in the price level.

As a Contractionary Gap Is Closed in the Long Run