Suppose the economy is currently operating at potential output; an expansionary gap may be caused by each of the following except:
A)a positive demand shock.
B)a positive inflation shock.
C)an increase in government spending.
D)an increase in the inflation rate.

Question

Quizplus · Accepted Answer

An increase in the inflation rate does not directly cause an expansionary gap; it is typically a result of an expansionary gap. An expansionary gap is caused by factors that increase aggregate demand, such as a positive demand shock or increased government spending.

Suppose the Economy Is Currently Operating at Potential Output; an Expansionary