When an economy's actual output is greater than its potential at some point in time, we say that it is experiencing:
A) a positive output gap.
B) a negative output gap.
C) inflation.
D) deflation.

Question

Quizplus · Accepted Answer

When an economy's actual output is greater than its potential, it is operating above its productive capacity and resources may be strained or overused. This situation is referred to as a positive output gap. This can lead to inflationary pressures in the economy as demand for goods and services outstrips supply, and therefore, prices may increase.

When an Economy's Actual Output Is Greater Than Its Potential