-In the above figure, the inflationary gap when AD? is the aggregate demand curve equals
A) the difference between 110 and 100.
B) the difference between $16.5 trillion and $16.0 trillion.
C) LAS minus SAS at a price level of 100.
D) AD?.

Question

-In the above figure, the inflationary gap when AD? is the aggregate demand curve equals
A) the difference between 110 and 100. 
B) the difference between $16.5 trillion and $16.0 trillion. 
C) LAS minus SAS at a price level of 100. 
D) AD?.

Quizplus · Accepted Answer

The inflationary gap is defined as the amount by which the actual aggregate demand exceeds the aggregate supply at the full employment level. In this context, it refers to the difference in the real GDP levels at the full employment level ($16.0 trillion) and the actual GDP level when the aggregate demand curve is AD? ($16.5 trillion). This gap indicates the excess demand in the economy at the full employment level, leading to upward pressure on prices, hence inflation.

-In the Above Figure, the Inflationary Gap When AD? Is