Suppose that GDP is ________ potential output. We would expect prices to rise, money demand to rise, interest rates to rise, and total demand to ________.
A) above; fall
B) above; rise
C) below; fall
D) below; rise

Question

Quizplus · Accepted Answer

When GDP is above potential output, the economy is overheating, leading to higher prices (inflation). This increases money demand, which raises interest rates, causing total demand to fall.

Suppose That GDP Is ________ Potential Output