Suppose the economy is initially in long-run equilibrium. A decrease in aggregate demand will

Question

BlackTom AI · Accepted Answer

Consider the scenario: the economy starts in long-run equilibrium. A decrease in aggregate demand reduces the overall price level and real GDP in the short run, but in the long run the economy tends to return to its potential output with higher unemployment temporarily.
Option a: permanently move the economy into an inflationary gap. This is unlikely because a decrease in AD reduces inflationary pressures, not increases them; an inflationary gap would require AD to rise or SRAS to shift left, not fall.
Option b: permanently move the economy into a recessionary gap. While the economy may temporarily sit in a recessionary gap with output below potential, the word permanently is not appropriate here due to self-correcting tendencies of LRAS and price adjustments that move the economy back toward potential output in the long run.
Option c: temporarily move the economy into a recessionary gap. This aligns with standard AD-AS analysis: a negative AD shock lowers equilibrium output and price level in the short run, creating a recessionary gap; as wages and prices adjust, the economy tends to move back toward potential output, restoring the long-run equilibrium.
Option d: temporarily move the economy into an inflationary gap. An inflationary gap would require AD to rise or SRAS to shift left, increasing output and pressure on prices; a decrease in AD does not create this scenario.
Option e: not result in either a recessionary or inflationary gap. This would ignore the immediate short-run effect of a negative AD shock, which typically creates a gap (often recessionary) before adjustments restore long-run equilibrium.
In summary, the option stating a temporary recessionary gap best captures the standard short-run response to a downward AD shift while recognizing a return toward potential output in the long run.

Suppose the economy is initially in long-run equilibrium. A decrease in aggregate demand will单项选择题

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