The diagram shows an economy's aggregate demand (ADADAD), short-run aggregate supply (SRASSRASSRAS), and long-run aggregate supply (LRASLRASLRAS) curves.
Which of the following correctly describes the economic scenario represented by the gap between Y1 Y_1\,Y1 and YfY_fYf, and the subsequent long-run automatic adjustment in the absence of government policy interventions?
A negative output gap; SRASSRASSRAS will shift to the right as nominal wages fall.
A positive output gap; ADADAD will shift to the left as consumption decreases.
A recessionary gap; LRASLRASLRAS will shift to the left to match the lower short-run output.
An inflationary gap; SRASSRASSRAS will shift to the left as production costs rise.
