A Short-Run Equilibrium with a Recessionary Gap Implies That

Multiple Choice

A short-run equilibrium with a recessionary gap implies that

A) firms will raise the prices of their goods and services more than needed to fully cover their increases in costs.
B) firms will raise the prices of their goods and services as much as needed to fully cover their increases in costs.
C) there will be negative inflation.
D) firms have incentives to lower the relative prices of their goods and services.
E) firms have incentives to raise the relative prices of their goods and services.