In Exhibit 3, the level of real GDP associated with Y₁: A)is equal to potential real GDP. B)is an inflationary gap real GDP. C)is a long-run equilibrium. D)is caused by flexible wages and prices.

Question

Quizplus · Accepted Answer

An inflationary gap occurs when the actual real GDP (Y1) exceeds the potential real GDP, indicating that the economy is producing beyond its sustainable capacity, often leading to upward pressure on prices.

In Exhibit 3, the Level of Real GDP Associated with Y1

In Exhibit 3, the Level of Real GDP Associated with Y₁