What is meant when economists use the term "overheating of the economy"?
A) Consumers have dramatically increased spending.
B) GDP is higher than potential output.
C) The stock market is experiencing heavy trading.
D) The balance of trade is affecting the GDP too much.

Question

Quizplus · Accepted Answer

When economists use the term "overheating of the economy," it means that the economy is operating above its potential output. This can lead to a variety of issues, including inflation, asset bubbles, and eventually a recession. It is typically a result of high demand for goods and services, which leads to price increases and an increase in overall economic activity beyond what the economy can sustain in the long run. Consumer spending (A), stock market activity (C), and balance of trade (D) can all be factors contributing to an overheating economy, but the key factor is that GDP is higher than potential output.

What Is Meant When Economists Use the Term "Overheating of the Economy