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

question 36

Multiple Choice

Suppose that the aggregate demand (ADI) curve in an economy is Y = 20,000 - 20,000
,current inflation ( 11ec9ae2_bd79_1ce7_a39a_a9c7bc0c6307_TB34225555_11 ) equals 0.06 (6%) ,and potential output (Y*) equals 18,800.If,starting from long-run equilibrium,an aggregate supply shock reduces potential output to 18,400,in the short run,there will be a(n) ___________ gap and,in the long run,inflation will equal _________.

• A) expansionary;6%
• B) expansionary;7%
• C) expansionary;8%
• D) recessionary;6%
• E) recessionary;8%

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