An inflationary gap is occurs when
A) real GDP is less than potential GDP.
B) real GDP exceeds potential GDP.
C) real GDP equals potential GDP.
D) the economy is at full employment.

Question

Quizplus · Accepted Answer

An inflationary gap occurs when real GDP exceeds potential GDP, which means the economy is operating at a level that is unsustainable and is likely to result in rising inflation. This typically happens when there is excess demand and businesses are unable to increase production to keep up, leading to price increases.

An Inflationary Gap Is Occurs When