An inflationary output gap is characterized by
A)falling prices.
B)constant prices.
C)real output that varies one-for-one with aggregate demand.
D)real GDP exceeding potential output.
E)real GDP falling below potential output.

Question

Quizplus · Accepted Answer

An inflationary output gap occurs when the level of real GDP exceeds the potential output of the economy, indicating that the economy is producing at a level above its long-term sustainable capacity. This typically leads to upward pressure on prices in the economy, as demand for goods and services outstrips the economy's ability to supply them.

An Inflationary Output Gap Is Characterized by