Figure 13-8 shows the short-run macroeconomic equilibrium of an economy. In the figure, starting at Point A, a decrease in aggregate demand would result in:Figure 13-8
A)a further increase in the inflationary gap in the short run.
B)a further increase in the recessionary gap in the short run.
C)an immediate restoration of long-run equilibrium in the economy.
D)a decrease in the inflationary gap in the short run.
E)a decrease in the unemployment rate in the short run.

Question

Figure 13-8 shows the short-run macroeconomic equilibrium of an economy. In the figure, starting at Point A, a decrease in aggregate demand would result in:Figure 13-8 
A)a further increase in the inflationary gap in the short run. 
B)a further increase in the recessionary gap in the short run. 
C)an immediate restoration of long-run equilibrium in the economy. 
D)a decrease in the inflationary gap in the short run. 
E)a decrease in the unemployment rate in the short run.

Quizplus · Accepted Answer

Starting at Point A, a decrease in aggregate demand would shift the aggregate demand curve to the left, leading to a decrease in output and an increase in unemployment. This would result in a movement along the short-run aggregate supply curve to point B, where the economy experiences a larger recessionary gap. Therefore, the correct answer is B, a further increase in the recessionary gap in the short run.

Figure 13-8 Shows the Short-Run Macroeconomic Equilibrium of an Economy