Figure 7-6 -Refer to Figure 7-6. Suppose the Economy Is Initially at Is

Multiple Choice

Figure 7-6
-Refer to Figure 7-6. Suppose the economy is initially at point A. Now suppose an increase in government purchases shifts the aggregate demand curve to AD₂. As a result,

A) the economy is not in equilibrium because it operates with an output gap.
B) the economy is in short-run equilibrium and it operates with an inflationary gap.
C) the economy is in short-run equilibrium and it operates with a recessionary gap.
D) the economy is not in equilibrium because the unemployment rate is not equal to the natural rate of unemployment.