Which of the following would be a direct result of real GDP being above potential GDP?
A)Firms would raise their prices and there would be a subsequent rise in inflation.
B)Firms would lower their prices and there would be a subsequent decrease in inflation.
C)Government spending would decline.
D)None of the above would be a result.
E)Real GDP can never be above potential GDP.

Question

Quizplus · Accepted Answer

When real GDP is above potential GDP, it indicates that the economy is operating at a level higher than its long-term capacity. This can lead to firms experiencing increased demand and potentially raising prices in response, leading to inflation.

Which of the Following Would Be a Direct Result of Real