Suppose That an Economy Is in an Inflationary Gap in the Short

Multiple Choice

Suppose that an economy is in an inflationary gap in the short run. In the long run:

A) the economy's self-correcting mechanism will restore GDP to its potential level.
B) inflation will spiral unless the government takes dramatic fiscal measures.
C) sustained inflation will reduce the value of money.
D) fiscal and monetary policies may lower prices, but output will remain higher than potential level.