What occurs when spending is above the full employment level?
A) inflationary gap
B) depressionary gap
C) recessionary gap
D) expansionary gap

Question

Quizplus · Accepted Answer

When spending is above the full employment level, it creates an inflationary gap. This means that the demand for goods and services exceeds the productive capacity of the economy, leading to rising prices and inflation. To prevent inflation, the government or central bank may implement contractionary policy measures such as raising interest rates, reducing government spending, or increasing taxes.

What Occurs When Spending Is Above the Full Employment Level