There is an inflationary gap when
A) real GDP is above potential GDP.
B) potential GDP is above real GDP.
C) real GDP per hour of labour is increasing.
D) real GDP per person is increasing.
E) potential GDP is increasing.

Question

Quizplus · Accepted Answer

An inflationary gap refers to a situation where real GDP is above potential GDP, indicating that the economy is producing beyond its long-run capacity, which can lead to upward pressure on prices due to excess demand.

There Is an Inflationary Gap When