An expansionary gap is equal to _____
A) real GDP minus nominal GDP.
B) nominal GDP minus real GDP.
C) the actual short-run output minus potential output.
D) the actual price level minus the expected price level.
E) the actual long-run real GDP minus the actual short-run disposable income.

Question

Quizplus · Accepted Answer

An expansionary gap is simply the amount by which the actual short-run output exceeds potential output. This can occur in the short-run due to factors such as increased demand, leading to higher production levels beyond the economy's sustainable capacity. Option A (real GDP minus nominal GDP) is incorrect as nominal GDP is always greater than or equal to real GDP. Option B (nominal GDP minus real GDP) is incorrect for the same reason. Option D (actual price level minus expected price level) is incorrect as it relates to inflation and not to output levels. Option E (actual long-run real GDP minus the actual short-run disposable income) is also incorrect as it compares measures of output and income that are not necessarily related to each other.

An Expansionary Gap Is Equal to _____