A consequence of an inflationary gap is ____ as output begins to decrease and prices continue to increase.
A)stagflation
B)reflation
C)disinflation
D)perflation

Question

Quizplus · Accepted Answer

An inflationary gap occurs when the actual output exceeds the potential output, causing inflationary pressures. If this gap is not addressed, it can lead to stagflation, which is a combination of high inflation and low economic growth. As output begins to decrease and prices continue to increase, the economy may enter a period of stagflation, which can be difficult to reverse. Reflation is typically used to describe an attempt to stimulate the economy by increasing demand, while disinflation refers to a slowing down of inflation. Perflation is not a commonly used economic term.

A Consequence of an Inflationary Gap Is ____ as Output