Consider the above figure. If the aggregate demand went from AD2 to AD3, our nation would have gone from
A) a recessionary gap to an inflationary gap.
B) a recessionary gap to full-employment real GDP.
C) an inflationary gap to full-employment GDP.
D) full-employment real GDP to an inflationary gap.

Question

Quizplus · Accepted Answer

The movement from AD2 to AD3 suggests an increase in aggregate demand beyond the level that would lead to full employment. As a result, the economy would move from a recessionary gap at point A to an inflationary gap at point B where the economy is producing beyond its capacity and facing upward pressure on price levels.

Consider the Above Figure