An inflationary gap means that short-run macroeconomic equilibrium GDP
A) is less than full-employment GDP.
B) equals full-employment GDP.
C) is more than full-employment GDP.
D) may be less than, more than, or the same as full-employment GDP depending on the level of potential GDP.

Question

Quizplus · Accepted Answer

An inflationary gap occurs when the actual output is above the potential output of the economy, which means that the short-run macroeconomic equilibrium GDP is greater than the full-employment GDP. Therefore, the best choice is (C).

An Inflationary Gap Means That Short-Run Macroeconomic Equilibrium GDP