Which of the following would be associated with an inflationary gap?

Question

Quizplus · Accepted Answer

An inflationary gap occurs when the economy is producing above its potential output, resulting in upward pressure on prices. This can happen when inventory levels are too low, as firms are unable to meet demand and are forced to increase prices. The other choices are not associated with an inflationary gap. Interest rates that are too low may contribute to inflation, but they are not a characteristic of an inflationary gap specifically. Business expectations and stock market crashes are indicators of a recessionary gap when the economy is producing below potential output, and high inventory levels are associated with deflationary pressures.

Which of the Following Would Be Associated with an Inflationary