Question

Suppose the economy is operating in long-run equilibrium and a positive demand shock hits. We expect a short-run increase in real GDP and the price level and a long-run _____ in real GDP (in comparison to the then short run GDP) and _____ the price level (in comparison to the then short run price level).

Answer 1

Answer:

The correct answer is: an expansionary gap; decrease the money supply.

Explanation:

An expansionary gap is when genuine output surpasses potential output. At the end of the day, the economy is incidentally working over its long-run potential as estimated by real GDP.