Which of the following if true would suggest that an expansionary gap exists in an economy?
A)Rapid inflation during a period when plant capacity utilization is below average
B)A steady price level coupled with a 5 percent unemployment rate
C)An unemployment rate below its natural rate and an unexpected increase in the consumer price index
D)Sluggish growth in the rate of inflation and an exceptional increase in the Dow Jones average
E)A modest increase in the number of new unemployment claims and a lower than expected price level

Question

Which of the following if true would suggest that an expansionary gap exists in an economy?
A)Rapid inflation during a period when plant capacity utilization is below average​
B)A steady price level coupled with a 5 percent unemployment rate
C)An unemployment rate below its natural rate and an unexpected increase in the consumer price index
D)Sluggish growth in the rate of inflation and an exceptional increase in the Dow Jones average
E)A modest increase in the number of new unemployment claims and a lower than expected price level

Quizplus · Accepted Answer

An expansionary gap exists when actual output exceeds potential output, leading to a decrease in unemployment below its natural rate and an increase in the price level. Option C identifies both of these characteristics, with the unemployment rate below its natural rate and an unexpected increase in the consumer price index indicating that the economy is operating above its potential.

Which of the Following If True Would Suggest That an Expansionary