An expansionary gap in the short-run results in:
A)lower resource prices in the long run.
B)unemployment in the long run.
C)a recessionary gap in the long run.
D)cost-push inflation in the long run.
E)demand-pull inflation in the long run.

Question

Quizplus · Accepted Answer

An expansionary gap occurs when actual output exceeds potential output, leading to upward pressure on prices and wages in the short run. This can lead to cost-push inflation in the long run as firms pass on their increased costs to consumers. Lower resource prices (A) and unemployment (B) are not likely outcomes of an expansionary gap, as firms are producing above their normal levels and may need to hire more workers to keep up with demand. A recessionary gap (C) is the opposite of an expansionary gap and occurs when actual output falls below potential output, resulting in decreased demand and upward pressure on unemployment. Demand-pull inflation (E) is typically associated with an increase in aggregate demand, which is not an inherent characteristic of an expansionary gap.

An Expansionary Gap in the Short-Run Results In