PRC-3 · Chapter 13 · Question 28 of 50
An economy reaches its absolute maximum capacity where all citizens are employed. However, intense government and consumer spending continues to rise. Because no more goods can be physically produced, this excess demand creates:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) An inflationary gap
Explanation
An inflationary gap occurs when Aggregate Demand outstrips Aggregate Supply at the full-employment level, forcing the general price level to rise because output cannot.
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