If the full-employment level of real GDP is greater than the equilibrium level of real GDP, the nation would be experiencing a(n)
A) inflationary gap.
B) recessionary gap.
C) demand-pull inflation.
D) rising prices.

Question

Quizplus · Accepted Answer

If the full-employment level of real GDP is greater than the equilibrium level of real GDP, it means that the economy is producing less than its potential output. This implies that there are unused resources and unemployed workers in the economy, leading to a recessionary gap. The economy is not able to reach its full potential, and there is a need for policies to increase aggregate demand and close the gap.

If the Full-Employment Level of Real GDP Is Greater Than