If equilibrium GDP exceeds potential GDP
A) potential output is much greater than actual output.
B) the economy is in a recession.
C) price levels are falling.
D) actual spending is too low.
E) an inflationary gap exists.

Question

Quizplus · Accepted Answer

An inflationary gap exists when equilibrium GDP exceeds potential GDP. This means that the economy is operating beyond its full capacity, causing excess demand for goods and services and putting upward pressure on prices. If left unchecked, this can lead to inflation.

If Equilibrium GDP Exceeds Potential GDP