Assume an economy is currently in equilibrium with Real GDP at $500 billion.If potential Real GDP (LAS)is $400 billion,which of the following is true?
A)There is a recessionary gap of 100 percent.
B)There is a recessionary gap of $100 billion.
C)There is an inflationary gap of 100 percent.
D)There is an inflationary gap of $100 billion.

Question

Quizplus · Accepted Answer

When actual Real GDP exceeds potential Real GDP, the economy is experiencing an inflationary gap. In this case, the gap is $100 billion ($500 billion - $400 billion), indicating an inflationary gap of $100 billion, not a percentage.

Assume an Economy Is Currently in Equilibrium with Real GDP