Suppose the aggregate demand curve in an economy is Y =20 000-20 000p, current inflation (p) equals 0.06 (6%), and potential output ( Y *) equals 18...
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Suppose the aggregate demand curve in an economy is Y=20 000-20 000p, current inflation (p) 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 _____ %.


Select one:

a. expansionary; 8

b. expansionary; 6

c. expansionary; 7

d. recessionary; 6

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