Inflationary gaps are typically associated with
A)excess supply of factors and lower- than- normal factor- utilization rates.
B)excess supply of factors and normal factor- utilization rates.
C)excess demand for factors and lower- than- normal factor- utilization rates.
D)excess demand for factors and higher- than normal factor- utilization rates.
E)excess supply of factors and higher- than- normal factor- utilization rates.

Question

Quizplus · Accepted Answer

In an inflationary gap, aggregate demand exceeds the potential output of an economy, leading to excess demand for factors of production (such as labor and capital) and higher-than-normal factor-utilization rates. Choice A and B describe a situation of a recessionary gap, while choice C and E do not accurately describe the characteristics of an inflationary gap.

Inflationary Gaps Are Typically Associated with