If the output gap is constant at minus 2 and the inflation rate has fa

If the output gap is constant at minus 2 and the inflation rate has fallen from 6 percent to 5 percent, then next period’s short-run aggregate supply curve might be ________.

A) π = 5 – 0.5 (13 – 15)
B) π = 5 + 0.5 (13 – 15)
C) π = 4 + 0.5 (13 – 15)
D) π = 5 + 2 (11 – 15)
E) none of the above

ANSWER

B