Use the Following to Answer Questions

Multiple Choice

Use the following to answer questions:
Figure: Policy Alternatives
-(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. The economy in panel (b) is initially in short-run equilibrium at real GDP level Y₁ and price level P₂. At real GDP level Y₁ there is:

A) an inflationary gap.
B) a recessionary gap.
C) no gap.
D) long-run equilibrium.