PRC-3 · Chapter 13 · Question 2 of 50
A thriving economy reaches its maximum full-employment output capacity. However, total consumer, government, and investment spending continues to rise far beyond this capacity. What specific macroeconomic gap does this create?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Inflationary gap
Explanation
An inflationary gap occurs when Aggregate Demand exceeds Aggregate Supply at the full-employment level, pulling the general price level upward because output cannot be increased further.
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