If actual output exceeds potential output, the economy:
A)is experiencing an inflationary gap.
B)is experiencing a recessionary gap.
C)may be in a long-run equilibrium but is not in a short-run equilibrium.
D)is in neither a short-run nor long-run equilibrium.

Question

Quizplus · Accepted Answer

When actual output exceeds potential output, the economy is experiencing an inflationary gap. This situation indicates that the economy is producing beyond its sustainable capacity, leading to upward pressure on prices or inflation.

If Actual Output Exceeds Potential Output, the Economy