Use the following to answer questions: -(Figure: Fiscal Policy Choices) Refer to Figure: Fiscal Policy Choices. In panel (b), if real GDP is equal to Y₁, there is: A) an inflationary gap. B) a recessionary gap. C) equilibrium at full employment. D) no gap.

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An inflationary gap occurs when the actual GDP is higher than the potential GDP, leading to upward pressure on prices due to the economy operating beyond its full employment level.

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