The Economy Is at Full Employment

Multiple Choice

The economy is at full employment. If aggregate demand increases,

A) an inflationary gap is created and potential GDP increases to close the gap.
B) an inflationary gap is created and the AS curve shifts leftward as the money wage rate rises.
C) an inflationary gap is created and the AD curve shifts leftward.
D) a recessionary gap is created and the AS curve shifts leftward as the money wage rate falls.
E) a recessionary gap is created and the AS curve shifts leftward as the money wage rate rises.