In the figure below, the economy is initially in long-run equilibrium at point A. If there is an adverse supply shock that reduces 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. an expansionary: eventually shift to SRAS"
B. a recessionary; eventually shift to SRAS'
C. an expansionary; eventually shift to SRAS'
D. a recessionary; eventually shift to SRAS"


Answer: C

Economics

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