The figure below shows the short-run aggregate supply curve of an economy. In this figure, an expansionary gap would be represented by the distance between: A) Y₂and Y₁. B) Y₃and Y₁. C) Y₂and Y₃. D) P₂and P₁. E) P₂and P₃.

Question

Quizplus · Accepted Answer

An expansionary gap represents a situation where the actual output (Y) is greater than the potential output (YS). In the given figure, YS represents the potential output level and Y represents the actual output level. The distance between Y₃ and Y₁ represents the expansionary gap - the difference between actual output and potential output. Therefore, option B is the correct choice.

The Figure Below Shows the Short-Run Aggregate Supply Curve of an Economy