An inflationary gap will eliminate itself through a process of price increases.

Question

Quizplus · Accepted Answer

An inflationary gap occurs when aggregate demand exceeds potential output, leading to upward pressure on prices. As prices increase, consumption will decrease and producers will increase output, which will bring the economy closer to its potential output and eventually eliminate the inflationary gap. Therefore, an inflationary gap will eliminate itself through a process of price increases.

An Inflationary Gap Will Eliminate Itself Through a Process of Price