Equilibrium GDP in excess of potential GDP eventually will cause the aggregate
A)demand curve to shift outward.
B)supply curve to shift outward.
C)supply curve to shift inward.
D)demand curve to become flatter.

Question

Quizplus · Accepted Answer

When equilibrium GDP exceeds potential GDP, it indicates an overheating economy where demand outpaces the economy's capacity to produce. This situation can lead to inflationary pressures, which may prompt producers to reduce output or increase prices, effectively shifting the aggregate supply curve inward as the economy tries to balance demand with sustainable production levels.

Equilibrium GDP in Excess of Potential GDP Eventually Will Cause