Based on the figure, the economy is initially in long-run equilibrium at point A. If there is a favorable supply shock that increases 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. a recessionary; eventually shift to SRAS'
B. an expansionary; eventually shift to SRAS'
C. an expansionary: eventually shift to SRAS"
D. a recessionary; eventually shift to SRAS"
Answer: D
You might also like to view...
Which of the following is likely to shift the demand curve for workers in rice farms to the right, assuming all else equal?
A) A decrease in the price of rice B) An increase in the price of rice C) An increase in the wage rate D) A decrease in the wage rate
Compared to checks, paper currency and coins have the major drawbacks that they
A) are easily stolen. B) are hard to counterfeit. C) are not the most liquid assets. D) must be backed by gold.
In the early post-war years, the Fed was reluctant to continue its wartime agreement with the Treasury because it believed the result would be
A) recession. B) inflation. C) higher taxes. D) lower taxes.
If marginal revenue exceeds marginal cost, profit maximizers should:
a. reduce output until they are equal. b. increase output until they are equal. c. increase output until profits are zero. d. decrease output unless profits are zero. e. maintain current output.