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

Question

Quizplus · Accepted Answer

If there is an expansionary output gap, the economy is above full-employment equilibrium. In this case there is a tendency for inflation to increase.

When an Expansionary Gap Exists, Actual Output ________ Potential Output