When output exceeds potential output:
(i) there is excess demand.
(ii) demand-pull inflation occurs.
(iii) the output gap becomes negative.
(iv) the output gap becomes positive.
A)(i) only
B)(ii) and (iv)
C)(iii) only
D)(i), (ii), and (iv)

Question

Quizplus · Accepted Answer

When output exceeds potential output, there is excess demand in the economy, which can lead to demand-pull inflation. This situation is described by a positive output gap, not a negative one.

When Output Exceeds Potential Output