-Consider the above figure. If the aggregate demand went from AD₂ to AD₃, our nation would have gone from
A)a recessionary gap to an inflationary gap.
B)a recessionary gap to full-employment real GDP.
C)an inflationary gap to full-employment GDP.
D)full-employment real GDP to an inflationary gap.

Question

-Consider the above figure. If the aggregate demand went from AD₂ to AD₃, our nation would have gone from
A)a recessionary gap to an inflationary gap. 
B)a recessionary gap to full-employment real GDP. 
C)an inflationary gap to full-employment GDP. 
D)full-employment real GDP to an inflationary gap.

Quizplus · Accepted Answer

Aggregate demand (AD) is the total demand for goods and services in an economy. When AD increases, it leads to an increase in output and employment. In the given figure, AD₂ represents a recessionary gap, which means that the economy is operating below its full-employment potential. AD₃ represents an inflationary gap, which means that the economy is operating above its full-employment potential. Therefore, if AD went from AD₂ to AD₃, the nation would have gone from a recessionary gap to an inflationary gap.

-Consider the Above Figure