When there is an inflationary gap,(actual)Real GDP is __________ Natural Real GDP,and the (actual)unemployment rate is __________ the natural unemployment rate.
A) greater than; less than
B) greater than; greater than
C) less than; greater than
D) less than; less than
E) less than; equal to

Question

Quizplus · Accepted Answer

In an inflationary gap, the actual (or observed) Real GDP is greater than the Natural Real GDP, which means that the economy is producing more than its long-run potential. This often leads to upward pressure on prices and inflation.

In addition, the actual unemployment rate is less than the Natural Unemployment rate, meaning that the labor market is tighter than usual, with a shortage of labor and lower unemployment than expected in the long run. This can put upward pressure on wages and contribute to inflationary pressures.

When There Is an Inflationary Gap,(actual)Real GDP Is __________ Natural