If equilibrium GDP exceeds full-employment GDP,
A)The difference is the recessionary GDP gap.
B)The difference is the inflationary GDP gap.
C)Inventories will accumulate.
D)Leakages must be greater than injections.

Question

Quizplus · Accepted Answer

If equilibrium GDP exceeds full-employment GDP, it means that the economy is operating above its potential output, which leads to excessive demand for goods and services. This generates upward pressure on prices, leading to inflation. The difference between equilibrium GDP and full-employment GDP is called the inflationary GDP gap.

If Equilibrium GDP Exceeds Full-Employment GDP