Assume that the present price level is P1.

-Refer to the above graph to answer this question.Which graph illustrates an inflationary gap?

Question

Assume that the present price level is P1.
 
-Refer to the above graph to answer this question.Which graph illustrates an inflationary gap?

Quizplus · Accepted Answer

Graph B shows that aggregate demand (AD) is above the potential GDP line (LRAS), which indicates an inflationary gap. This suggests that there is excess demand in the economy, causing prices to rise above the expected level, leading to inflation.

Assume That the Present Price Level Is P1