FIGURE 29-2 -Refer to Figure 29-2.Suppose an Inflationary Gap Has Opened and Opened

question 79

Multiple Choice

FIGURE 29-2
-Refer to Figure 29-2.Suppose an inflationary gap has opened and the economy is at E₁.Which of the following statements best describes the movement of the economy from E₁ to E₂?

• A)The inflationary gap puts upward pressure on factor prices and AS shifts upward.Simultaneously,the Bank of Canada validates the demand shock,thus shifting the AD curve further to the right.
• B)The inflationary gap puts upward pressure on factor prices and AS shifts upward.Simultaneously,the Bank of Canada implements a contractionary monetary policy,shifting the AD curve to the left.
• C)The inflationary gap causes an increase in the expectations of the future inflation.As a result,the AS curve shifts upward and the AD curve shifts to the right.
• D)The inflationary gap generates excess demand for labour,which causes the AD curve to shift to the right.The adjustment process then shifts the AS curve upward.
• E)The economy's adjustment process causes the economy to move from E₁ to E₂.