Which of the following statements about output gaps is true?
A)When actual GDP is above potential GDP, there is upward pressure on wages.
B)When actual GDP is above potential GDP, there is downward pressure on output prices.
C)When actual GDP is above potential GDP, there is downward pressure on wages.
D)When actual GDP is below potential GDP, there is upward pressure on wages.
E)When actual GDP is below potential GDP, there is upward pressure on output prices.

Question

Quizplus · Accepted Answer

When actual GDP is above potential GDP, the economy is operating above its capacity, leading to increased demand for labor and upward pressure on wages.

Which of the Following Statements About Output Gaps Is True