The figure below shows the short-run aggregate supply curve of an economy.In this figure,an expansionary gap would be represented by the distance between: Figure 10.1 A)Y₂and Y₁. B)Y₃and Y₁. C)Y₂and Y₃. D)P₂and P₁. E)P₂and P₃.

Question

Quizplus · Accepted Answer

An expansionary gap occurs when the equilibrium output exceeds the potential output (YS). In the given figure, the potential output is represented by the intersection of YS1 and the vertical axis. The equilibrium output is represented by the intersection of AD1 and the short-run aggregate supply curve (SAS). Therefore, the distance between the equilibrium output level (Y₃) and the potential output level (Y₁) represents the expansionary gap.

The Figure Below Shows the Short-Run Aggregate Supply Curve of an Economy.In