Long-Run Adjustment to an Inflationary Gap
What is the primary consequence of an economy’s long-run self-adjustment to an inflationary gap?
A
An immediate reduction in aggregate demand, closing the inflationary gap
B
An automatic increase in interest rates, reducing investment and consumption
C
A gradual increase in wages and prices, shifting the SRAS curve leftward until full employment equilibrium is reached
D
A decrease in the natural rate of unemployment, expanding productive capacity
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