If GDP is ________ potential output, adjustment to the long-run equilibrium requires that output falls and prices ________.
A) above; rise
B) above; fall
C) below; rise
D) below; fall

Question

Quizplus · Accepted Answer

When GDP is above potential output, it indicates an overheated economy. To adjust to long-run equilibrium, output must decrease, and prices typically rise due to inflationary pressures.

If GDP Is ________ Potential Output, Adjustment to the Long-Run