When equilibrium GDP is too large,we have

Question

Quizplus · Accepted Answer

An inflationary gap occurs when equilibrium GDP is too large, indicating that the economy is producing more than its potential and creating upward pressure on prices. This could lead to escalating inflation if not corrected. Therefore, option C is the correct choice. Option A (a recessionary gap) is the opposite situation where equilibrium GDP is too low, and option B (a depression) is an extreme and prolonged economic downturn not necessarily related to equilibrium GDP. Option D (escalating inflation) is not a situation but rather a possible consequence of an inflationary gap.

When Equilibrium GDP Is Too Large,we Have