When the economy is at an above-full-employment equilibrium,
A) nominal GDP exceeds real GDP.
B) an inflationary gap exists.
C) a recessionary gap exists.
D) real GDP is less than potential GDP.

Question

Quizplus · Accepted Answer

An above-full-employment equilibrium indicates that the actual output exceeds the economy's long-term sustainable output, leading to an inflationary gap where demand outstrips supply, causing prices to rise.

When the Economy Is at an Above-Full-Employment Equilibrium