The more the short-run output exceeds an economy's potential,_____.
A)the smaller the expansionary gap
B)the greater the upward pressure on the price level
C)the larger the recessionary gap
D)the greater the downward pressure on the price level
E)the lesser the demand for resources

Question

Quizplus · Accepted Answer

When short-run output exceeds an economy's potential, it leads to an inflationary gap, which puts upward pressure on the price level. This is because the excess demand for goods and services leads to firms increasing their prices to take advantage of the situation.

The More the Short-Run Output Exceeds an Economy's Potential,_____