When the output gap becomes more positive:
A)prices fall due to surpluses.
B)demand-pull inflation rises.
C)unemployment rises.
D)negative supply shocks come about.

Question

Quizplus · Accepted Answer

When the output gap becomes more positive, it means that the economy is producing at a level higher than its potential, indicating that the demand for goods and services is increasing. With a rising demand, prices of goods and services are likely to increase as well, leading to demand-pull inflation. Options A, C, and D are unlikely outcomes when the output gap becomes more positive.

When the Output Gap Becomes More Positive