When actual output exceeds an economy's sustainable potential output, the economy is said to have
Correct answer: B. An inflationary gap
- A. A deflationary gap
- B. An inflationary gap
- C. A balance of payments gap
- D. A structural unemployment gap
Explanation
An inflationary gap exists when actual output is above potential output at normal resource utilisation. Excess aggregate demand can then place upward pressure on wages and the general price level.
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About Macroeconomics
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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