To achieve long-run equilibrium in an economy with a recessionary gap, the output will increase and the inflation rate will decrease.

Here's the step-by-step explanation:

1. A recessionary gap occurs when the actual output in an economy is less than the potential output. This means that the economy is not producing at its full capacity and there is unemployment.

2. To close this gap, the economy needs to increase its output. This can be achieved through expansionary fiscal or monetary policies. For example, the government can increase its spending or the central bank can lower interest rates to stimulate economic activity.

3. As output increases, the economy moves closer to its potential output, reducing the recessionary gap.

4. At the same time, because there is slack in the economy (unemployed resources), the increase in output does not immediately lead to higher prices. Therefore, the inflation rate will decrease.

5. Eventually, the economy will reach a long-run equilibrium where output is at its potential level and the inflation rate is stable.

Question

To achieve long-run equilibrium in an economy with a recessionary gap, the output will increase and the inflation rate will decrease.

Here's the step-by-step explanation:

1. A recessionary gap occurs when the actual output in an economy is less than the potential output. This means that the economy is not producing at its full capacity and there is unemployment.

2. To close this gap, the economy needs to increase its output. This can be achieved through expansionary fiscal or monetary policies. For example, the government can increase its spending or the central bank can lower interest rates to stimulate economic activity.

3. As output increases, the economy moves closer to its potential output, reducing the recessionary gap.

4. At the same time, because there is slack in the economy (unemployed resources), the increase in output does not immediately lead to higher prices. Therefore, the inflation rate will decrease.

5. Eventually, the economy will reach a long-run equilibrium where output is at its potential level and the inflation rate is stable.

Knowee AI · Accepted Answer

To achieve long-run equilibrium in an economy with a recessionary gap, the output will increase and the inflation rate will decrease.

Here's the step-by-step explanation:

1. A recessionary gap occurs when the actual output in an economy is less than the potential output. This means that the economy is not producing at its full capacity and there is unemployment.

2. To close this gap, the economy needs to increase its output. This can be achieved through expansionary fiscal or monetary policies. For example, the government can increase its spending or the central bank can lower interest rates to stimulate economic activity.

3. As output increases, the economy moves closer to its potential output, reducing the recessionary gap.

4. At the same time, because there is slack in the economy (unemployed resources), the increase in output does not immediately lead to higher prices. Therefore, the inflation rate will decrease.

5. Eventually, the economy will reach a long-run equilibrium where output is at its potential level and the inflation rate is stable.

To achieve long-run equilibrium in an economy with a recessionary gap, output will __ and the inflation rate will _.

Question

To achieve long-run equilibrium in an economy with a recessionary gap, output will __ and the inflation rate will .

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To achieve long-run equilibrium in an economy with a recessionary gap, output will ______ and the inflation rate will _____.