The gap that exists when equilibrium real Gross Domestic Product (GDP)is greater than full employment real Gross Domestic Product (GDP)is called a(n)
A)employment gap.
B)inflationary gap.
C)recessionary gap.
D)demand gap.

Question

Quizplus · Accepted Answer

When equilibrium real GDP is greater than full employment real GDP, it is an indication that the economy is producing more goods and services than what is required to meet the demand which leads to a situation of excess demand. This causes the price levels to increase and results in inflation. This gap is called an inflationary gap.

The Gap That Exists When Equilibrium Real Gross Domestic Product