Use the following to answer questions: Figure: An Increase in Aggregate Demand -(Figure: An Increase in Aggregate Demand) Refer to Figure: An Increase in Aggregate Demand. At the Y₂ level of real GDP: A) an inflationary gap equal to the sum of Y₂ and Y_Poccurs. B) an inflationary gap equal to the difference between Y₂ and Y_P occurs. C) the solution at Y₂ is a long-run equilibrium. D) a recessionary gap equal to the difference between Y₂ and Y_P occurs.

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An inflationary gap occurs when the actual level of real GDP (in this case, Y₂) is above the potential level of real GDP (Y_P), indicating that the economy is producing beyond its sustainable capacity. The gap is the difference between these two levels.

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