Exhibit 10.1

-Refer to Exhibit 10.1, which shows the short-run aggregate supply curve of an economy. An expansionary gap would be represented by the distance between _____
A) Y₂ and Y₁.
B) Y₃ and Y₁.
C) Y₂ and Y₃.
D) P₂ and P₁.
E) P₂ and P₃.

Question

Exhibit 10.1
 
-Refer to Exhibit 10.1, which shows the short-run aggregate supply curve of an economy. An expansionary gap would be represented by the distance between _____
A) Y₂ and Y₁. 
B) Y₃ and Y₁. 
C) Y₂ and Y₃. 
D) P₂ and P₁. 
E) P₂ and P₃.

Quizplus · Accepted Answer

An expansionary gap is the amount by which an economy's actual output exceeds its potential output. In Exhibit 10.1, potential output is represented by the vertical line labeled Yp. The distance between Yp and the short-run aggregate supply curve at Y1 represents the economy's output gap, which is negative and indicates a recessionary gap. An expansionary gap would occur when the economy is producing at a level higher than potential output, which is represented by the distance between Y3 and Y1. Therefore, the correct answer is choice B, Y3 and Y1.

Exhibit 10.1 -Refer to Exhibit 10.1, Which Shows the Short-Run Aggregate Supply