Suppose the Economy Is in a Long-Run Equilibrium

Multiple Choice

Suppose the economy is in a long-run equilibrium.The AS curve now shifts upward due to a one-time increase in the price of raw materials.If the central bank validates this supply shock,

A) the inflationary gap that has been created will be exacerbated.
B) an inflationary gap will be created,which will cause the AS curve to shift upward again.
C) the aggregate demand curve will shift up and result in a higher price level.
D) a recessionary gap will be created,which eventually causes the AS curve to shift downward.
E) a recessionary gap will be created and will cause a permanent reduction of employment.