When the macroeconomic equilibrium is such that real GDP exceeds potential real GDP, the economy is suffering from ________ and the government policy to eliminate this gap will ________ real GDP and to ________ the price level.
A) an inflationary gap; increase; increase
B) a recessionary gap; decrease; decrease
C) an inflationary gap; increase; decrease
D) a recessionary gap; increase; decrease
E) an inflationary gap; decrease; decrease

Question

Quizplus · Accepted Answer

When real GDP exceeds potential GDP, there is an inflationary gap. To eliminate this gap, the government would implement policies to decrease real GDP and decrease the price level.

When the Macroeconomic Equilibrium Is Such That Real GDP Exceeds