The size of the inflationary gap is:
A) the amount by which full employment GDP is above the equilibrium GDP.
B) the amount by which the AD must increase to eliminate the gap.
C) the amount by which the AS must decrease to eliminate the gap.
D) the amount by which the equilibrium GDP is above the full employment GDP.

Question

Quizplus · Accepted Answer

The inflationary gap is defined as the amount by which the actual or equilibrium GDP exceeds the full employment level of GDP. This occurs when the aggregate demand in an economy is greater than the aggregate supply at the full employment level, leading to upward pressure on prices.

The Size of the Inflationary Gap Is