An inflationary gap will exist when
A)aggregate demand grows more slowly than aggregate supply.
B)there is downward pressure on prices.
C)expenditures are not equal to aggregate demand.
D)equilibrium GDP is greater than full employment GDP.

Question

Quizplus · Accepted Answer

An inflationary gap exists when actual output (equilibrium GDP) is greater than potential output (full employment GDP). This means that the economy is operating beyond its capacity, resulting in upward pressure on prices and inflationary pressures. Choices A and B do not accurately describe an inflationary gap, and choice C is unclear and could apply to various economic situations.

An Inflationary Gap Will Exist When