Suppose That the Aggregate Demand (ADI)curve in an Economy Is

question 32

Multiple Choice

Suppose that the aggregate demand (ADI) curve in an economy is Y = 10,000 - 10,000
,current inflation ( 11ec9ae2_bd79_1ce7_a39a_a9c7bc0c6307_TB34225555_11 ) equals 0.03 (3%) ,and potential output (Y*) equals 9,700.If,starting from long-run equilibrium,an aggregate supply shock reduces potential output to 9,500,in the short run,there will be a(n) ___________ gap and,in the long run,inflation will equal _________.

• A) expansionary;3%
• B) expansionary;5%
• C) expansionary;7%
• D) recessionary;3%
• E) recessionary;5%