If the Short-Run Aggregate Supply Curve Intersects the Aggregate Demand

If the short-run aggregate supply curve intersects the aggregate demand curve to the right of the long-run aggregate supply curve, then the economy has _____ gap, and the government can close the gap by _____ taxes.

A) an inflationary; increasing
B) an inflationary; decreasing
C) a recessionary; increasing
D) a recessionary; decreasing

Correct Answer:

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