An inflationary output gap implies that
A)the demand for all factor services will be relatively low.
B)there is excess supply of most factors of production .
C)there is a pressure for wages to decrease.
D)the economy's resources are being used beyond their normal capacity.
E)the intersection of AD and AS occurs at real GDP below potential output.

Question

Quizplus · Accepted Answer

An inflationary output gap suggests that the economy is producing output beyond its normal or potential capacity, which means that resources such as labor and capital are being utilized more than usual, resulting in pressures on prices to rise. A, B, and C imply that there is insufficient demand or supply of factors of production, which is not applicable to an inflationary output gap. E suggests that the economy is producing output below its potential, which is the opposite of an inflationary output gap.

An Inflationary Output Gap Implies That