Which of the following occurs if an economy experiences an inflationary gap?
I. Actual real GDP is less than potential output.
II. Actual real GDP is greater than potential output.
III. Unemployment is less than the natural rate.
IV. Unemployment is greater than the natural rate.
A) I and III
B) I and IV
C) II and III
D) II and IV

Question

Which of the following occurs if an economy experiences an inflationary gap? 
I. Actual real GDP is less than potential output.
II. Actual real GDP is greater than potential output.
III. Unemployment is less than the natural rate.
IV. Unemployment is greater than the natural rate.
A) I and III
B) I and IV
C) II and III
D) II and IV

Quizplus · Accepted Answer

An inflationary gap occurs when actual real GDP exceeds potential output, leading to lower unemployment than the natural rate.

Which of the Following Occurs If an Economy Experiences an Inflationary