If there is an inflationary gap,then a 45-degree line exceeds the aggregate expenditure curve at the full-employment level of income.

Question

Quizplus · Accepted Answer

In the case of an inflationary gap, the aggregate expenditure curve intersects the 45-degree line (which represents an equilibrium where all output produced is purchased) above the full-employment level of income, indicating that demand exceeds what can be produced at full employment, not below it.

If There Is an Inflationary Gap,then a 45-Degree Line Exceeds