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Figure: Inflationary and Recessionary Gaps
-(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. Which of the following measures an inflationary gap?

Question

Use the following to answer questions:
Figure: Inflationary and Recessionary Gaps

-(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. Which of the following measures an inflationary gap?

Quizplus · Accepted Answer

An inflationary gap is the amount by which actual output (Y) exceeds potential output (Y*) at the full employment level of employment. In the figure, the measure of the inflationary gap is the difference between the actual output at point A (Y₃) and the potential output (full employment level of output) at point B (Y₂). Therefore, (Y₃ - Y₂) is the measure of the inflationary gap.

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