Assume an economy is currently in equilibrium with Real GDP at $716 billion.If potential Real GDP (LAS)is $627 billion,which of the following is true?
A)There is an inflationary gap of $89 billion.
B)There is an inflationary gap of 89 percent.
C)There is a recessionary gap of 89 percent.
D)There is a recessionary gap of $89 billion.

Question

Quizplus · Accepted Answer

When the actual Real GDP is above the potential Real GDP, it indicates an inflationary gap. The difference between the actual Real GDP ($716 billion) and the potential Real GDP ($627 billion) is $89 billion, which is the inflationary gap.

Assume an Economy Is Currently in Equilibrium with Real GDP