The diagram below shows the aggregate demand (ADADAD), short-run aggregate supply (SRASSRASSRAS), and long-run aggregate supply (LRASLRASLRAS) curves for an economy.
Which of the following correctly identifies the macroeconomic scenario depicted at equilibrium point E1E_1E1, and its likely consequence?
A positive output gap, which is characterized by overutilized resources and upward pressure on the price level.
A stagflationary state, where aggregate supply-side shocks have caused potential real GDP to fall below its long-run trend level.
A negative output gap, which is characterized by spare capacity and downward pressure on the price level due to deficient demand.
An inflationary gap, where actual national income exceeds the full-employment level, causing demand-pull inflation.