An inflationary GDP gap is equal to the
A)Recessionary GDP gap.
B)Difference between equilibrium GDP and full-employment GDP.
C)Difference between potential GDP and full-employment GDP.

Question

Quizplus · Accepted Answer

An inflationary GDP gap occurs when the equilibrium GDP is above the full-employment GDP, meaning the economy is producing more than it can sustain in the long run. Therefore, the best choice is B, which states that an inflationary GDP gap is equal to the difference between equilibrium GDP and full-employment GDP. The Recessionary GDP gap, choice A, refers to the situation where the equilibrium GDP is below the full-employment GDP, while choice C describes the difference between potential GDP (the maximum output an economy can sustain without causing inflation) and full-employment GDP.

An Inflationary GDP Gap Is Equal to the