What will happen in an economy in which actual GDP exceeds potential GDP?
A) Wages and prices must fall.
B) Self-correcting forces will shift the SRAS curve to the left.
C) Self-correcting forces will shift the AD curve to the left.
D) Inflation will occur when AD shifts to the left.

Question

What will happen in an economy in which actual GDP exceeds potential GDP?  
A) Wages and prices must fall. 
B) Self-correcting forces will shift the SRAS curve to the left. 
C) Self-correcting forces will shift the AD curve to the left. 
D) Inflation will occur when AD shifts to the left.

Quizplus · Accepted Answer

When actual GDP exceeds potential GDP, it indicates an overheated economy where demand outstrips supply, leading to inflationary pressures. Self-correcting mechanisms, such as increased wages and input costs, will eventually shift the short-run aggregate supply (SRAS) curve to the left, reducing output and increasing prices to bring the economy back towards its potential GDP.

What Will Happen in an Economy in Which Actual GDP