Question $16$

Which of the following summarizes the process for closing a recessionary gap if the economy is self$-$regulating?

Unemployed resources put downward pressure on resource prices, which leads to lower costs of production and an increase in short$-$run aggregate supply

Labor shortages put downward pressure on wages, which leads to increases in employment and spending and an increase in aggregate demand

Unemployed resources put upward pressure on the price level, which leads to higher wages, increases in spending and an increase in aggregate demand

Labor shortages put upward pressure on wages, which leads to higher costs of production and a decrease in short$-$run aggregate supply