Question

In a self-regulating economy, inflationary and recessionary gaps produce shifts of the:

a) AD curve that maintain the short-run equilibrium point.
b) AD curve that move the economy to a long-run equilibrium point.
c) SRAS curve that maintain the short-run equilibrium point.
d) SRAS curve that move the economy to a long-run equilibrium point.

Answer 1

In a self-regulating economy, inflationary and recessionary gaps produce shifts of the AD curve that move the economy to a long-run equilibrium point.

Step-by-step explanation:

In a self-regulating economy, inflationary and recessionary gaps produce shifts of the AD curve that move the economy to a long-run equilibrium point. When there is an inflationary gap, aggregate demand exceeds potential GDP, leading to upward pressure on prices and inflation. Conversely, when there is a recessionary gap, aggregate demand is below potential GDP, resulting in downward pressure on prices and recession.