In the Figure Below, the Economy Is Initially in Long-Run

question 36

Multiple Choice

In the figure below, the economy is initially in long-run equilibrium at point A If there is an adverse supply shock that reduces potential output and shifts the long-run aggregate supply curve from LRAS to LRAS', then there is initially _____ gap and the short-run aggregate supply curve will _____.

• A) an expansionary; eventually shift to SRAS'
• B) an expansionary: eventually shift to SRAS"
• C) a recessionary; eventually shift to SRAS"
• D) a recessionary; eventually shift to SRAS'

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