Say full-employment output would occur when the economy is producing $600 billion of Real GDP output.
If this economy is currently at AD2,
Multiple Choice
the economy has an inflationary gap, and Aggregate Demand must increase to achieve full employment and price stability.
the economy has a recessionary gap, and Aggregate Demand must increase to achieve full employment and price stability.
the economy has a recessionary gap, and Aggregate Demand must decrease to achieve full employment and price stability.
the economy has an inflationary gap, and Aggregate Demand must decrease to achieve full employment and price stability.