An inflationary output gap occurs when
A)potential GDP exceeds actual GDP.
B)demand for labour services is very low.
C)equilibrium national income is below potential national income.
D)actual GDP exceeds potential GDP.
E)nominal GDP exceeds real GDP.

Question

Quizplus · Accepted Answer

An inflationary output gap occurs when actual GDP exceeds potential GDP, which means that the economy is producing more than its long-run potential and is operating above its capacity. This can lead to increased inflationary pressures in the economy. Option A is incorrect as it describes a situation of a recessionary output gap where actual GDP is lower than potential GDP. Option B is irrelevant to an inflationary output gap. Option C is also incorrect as it describes a recessionary output gap. Option E describes a situation where there is inflation but does not necessarily relate to an output gap.

An Inflationary Output Gap Occurs When