If there is an inflationary gap,then a 45-degree line exceeds the aggregate expenditure curve at the full-employment level of income.
The 45-degree line exceeds the aggregate expenditure when there is a recessionary gap and spending would be insufficient to purchase all output.

Question

Quizplus · Accepted Answer

In an inflationary gap, the aggregate expenditure curve exceeds the 45-degree line at the full-employment level of income, indicating that spending is higher than the output produced at full employment.

If There Is an Inflationary Gap,then a 45-Degree Line Exceeds