When actual output is less than potential output,there is ________ output gap and the rate of inflation will tend to ________.
A) an expansionary;increase
B) an expansionary;decrease
C) no;remain the same
D) a recessionary;increase
E) a recessionary;decrease

Question

Quizplus · Accepted Answer

When actual output is less than potential output, it indicates a recessionary output gap. In this situation, the economy is not operating at its full capacity, which means there are high levels of unemployment and unused resources. In this scenario, the rate of inflation will tend to decrease because there is less demand for goods and services, and businesses are likely to decrease their prices to sell their inventory.

When Actual Output Is Less Than Potential Output,there Is ________