Short-Run Equilibrium and Inflationary Gaps
In Country X, the current unemployment rate is 3% and the natural rate of unemployment is 5%. Given that inflation is accelerating, which statement best describes the economy’s aggregate demand-aggregate supply (AD-AS) equilibrium?
A
Short-run equilibrium below potential output
B
Long-run equilibrium at potential output
C
Stagflation equilibrium with cost-push inflation
D
Short-run equilibrium above potential output
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