Cost-reducing technological advancements allow suppliers to earn more profits but have no noticeable effect on the supply curve.

Which of the following is an example of a supply shock?

A. A surge in consumer optimism prompts increased buying of goods and services. B. A surprise tax rebate from the government gives people more money to spend. C. A dramatic increase in energy prices increases production costs for firms in the economy. D. Government increases spending on education.

The economy pictured in the figure has a(n) ________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 

A. recessionary; A B. recessionary; C C. recessionary; B D. expansionary; A