When actual output is less than potential output, there is ________ output gap and the rate of inflation will tend to ________.
A)an expansionary; increase
B)an expansionary; decrease
C)a recessionary; decrease
D)a recessionary; increase

Question

Quizplus · Accepted Answer

If there is a recessionary output gap, the economy is below full-employment equilibrium. In this case there is a tendency for inflation to decrease.

When Actual Output Is Less Than Potential Output, There Is