When actual output is less than potential output, there is ______ output gap and the inflation rate will ____.
A)an expansionary; exceed the expected rate of inflation
B)an expansionary; be lower than the expected rate of inflation
C)a recessionary; be lower than the expected rate of inflation
D)a recessionary; exceed the expected rate of inflation

Question

Quizplus · Accepted Answer

When actual output is less than potential output, there is a recessionary output gap, leading to lower demand pressures and thus a lower inflation rate than expected.

When Actual Output Is Less Than Potential Output, There Is