When the economy is at an above full- employment equilibrium, .
A) an inflationary gap exists
B) nominal GDP exceeds real GDP
C) a recessionary gap exists
D) real GDP is less than potential GDP

Question

Quizplus · Accepted Answer

An above full-employment equilibrium means that the economy is producing more goods and services than its potential capacity. As a result, there is a shortage of resources, leading to an increase in prices and a decrease in the value of money. This situation is called an inflationary gap, where the demand for goods and services exceeds the supply, causing inflation.

When the Economy Is at an Above Full- Employment Equilibrium