If a graph showed aggregate demand and short-run aggregate supply intersecting at $18 trillion of GDP, and the long-run aggregate supply curve was situated at $20 trillion of GDP, this would indicate that the economy was

Select one:

a.

at full employment.

b.

experiencing high inflation.

c.

in a recession.

d.

in an expansion.

In the AD/AS model, a short-run inflationary boom can occur which returns to full employment in the long run because

Select one:

a.

the inflation reduces profitability and output in the short run, but costs eventually fall and output is restored in the long run.

b.

it takes a while for costs to catch up to inflation, so inflation boosts revenue, profit, and output in the short run, but the later-rising costs return profit and output to normal in the long run.

c.

aggregate supply is reduced in the short run, along with profit and output, but aggregate demand increases in the long run, along with profit and output, to bring the economy back to full employment.

d.

the boom pushes up prices and salaries in the short run, reducing output, but companies attempt to restore profitability in the long run by pushing prices and salaries back down, which brings output back to full employment.