When the macroeconomic equilibrium is such that real GDP exceeds potential real GDP, the economy is suffering from _{--------------------}, and the government policy to eliminate this gap will real GDP and to _{--------------------}the price level. A)an inflationary gap; increase; decrease B)a recessionary gap; decrease; decrease C)an inflationary gap; decrease; decrease D)a recessionary gap; increase; decrease E)an inflationary gap; increase; increase

Question

Quizplus · Accepted Answer

When real GDP exceeds potential GDP, there is an inflationary gap. To eliminate this, the government would aim to decrease real GDP and decrease the price level.

When the Macroeconomic Equilibrium Is Such That Real GDP Exceeds