Use the Following to Answer Questions

Multiple Choice

Use the following to answer questions:
Figure: Inflationary and Recessionary Gaps
-(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. The level of income associated with Y₁ in panel (b) :

A) is equal to potential output.
B) reveals an inflationary gap compared with Y_p.
C) is a long-run equilibrium.
D) is caused by flexible wages and prices.