Which of the Following Is True Regarding the Closing of a Contractionary

Multiple Choice

Which of the following is true regarding the closing of a contractionary gap?

A) The only way for the gap to close is for nominal wages to rise.
B) Such a gap could be closed if the nominal wage grew more slowly over time than the price level.
C) Once the economy falls into a contractionary gap,only a strong reduction in aggregate demand could close the gap.
D) Inflation eventually ends contractionary gaps.
E) Nominal wages and real wages should rise.