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*Assume you believe in a self regulating economy. What happens when an economy is in an inflationary gap?a. The labor market has a shortage, which increases the wage rate. Cost of production therefore increases, shifting the SRAS to the left until the economy reaches the natural real GDP.b. The labor market has a surplus, which pulls down the wage rate. Cost of production therefore falls, shifting the SRAS to the right until the economy reaches the natural real GDP.c. The labor market has a shortage, which increases the wage rate. Cost of production therefore decreases, shifting the SRAS to the right until the economy reaches the natural real GDP.d. The labor market has a surplus, which pulls down the wage rate. Cost of production therefore increases, shifting the SRAS to the right until the economy reaches the natural real GDP.
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