Which of the following would be strong evidence that an expansionary gap exists?
A) Rapid inflation occurs during a period when plant capacity utilization is below average.
B) Help-wanted advertising is higher than usual, and the consumer price index is up more than expected.
C) Inflation has slowed markedly, and the TSX average is at record levels.
D) The number of new unemployment claims has skyrocketed, and the price level is falling.

Question

Which of the following would be strong evidence that an expansionary gap exists?  
A) Rapid inflation occurs during a period when plant capacity utilization is below average. 
B) Help-wanted advertising is higher than usual, and the consumer price index is up more than expected. 
C) Inflation has slowed markedly, and the TSX average is at record levels. 
D) The number of new unemployment claims has skyrocketed, and the price level is falling.

Quizplus · Accepted Answer

Help-wanted advertising being higher than usual is a strong indicator that there is a labor shortage, which typically occurs during an expansionary gap when the economy is running above its potential output. Additionally, an increase in the consumer price index (CPI) beyond expectations indicates inflationary pressure, which can occur when aggregate demand is greater than aggregate supply in an expansionary gap situation.

Which of the Following Would Be Strong Evidence That an Expansionary