How is it possible for the economy to have an inflationary gap?
A)Equilibrium is at a GDP level below full employment.
B)Equilibrium is at a GDP level equal to full employment.
C)Equilibrium is at a GDP level above full employment.
D)GDP is rising at full employment.
E)GDP is falling at full employment.

Question

Quizplus · Accepted Answer

An inflationary gap occurs when equilibrium is at a GDP level above full employment. This means that the economy is producing more than it is capable of in the long run, which can lead to higher prices and inflation.

How Is It Possible for the Economy to Have an Inflationary