Suppose the economy's short-run equilibrium point is to the right of the Natural Real GDP.Which of the following is true?

Question

Quizplus · Accepted Answer

If the economy's short-run equilibrium point is to the right of the Natural Real GDP, it means that the actual output is higher than the potential output. This situation is known as an inflationary gap, where there is too much demand in the economy, leading to an upward pressure on prices. Therefore, choice A is correct. Choice B is incorrect because a recessionary gap occurs when the actual output is below the potential output. Choice C is incorrect because the economy is not in long-run equilibrium, as the actual output is above the potential output. Choice D is incorrect because it is possible for the economy to be in an inflationary gap.

Suppose the Economy's Short-Run Equilibrium Point Is to the Right