Question

If actual output exceeds potential output, the economy: Multiple Choice is experiencing an inflationary gap. is in neither a short-run nor long-run equilibrium. is experiencing a recessionary gap.

Answer 1

Answer:

Is experiencing an inflationary gap.

Explanation:

An inflationary gap can be defined as a macroeconomic concept which measures the difference between the actual output (Real Domestic Products) and the potential output (Gross Domestic Products) when an economy is being operated at full employment.

Hence, if actual output exceeds potential output, the economy is experiencing an inflationary gap. This simply means that, the consumers are demanding more of the goods and services than the economy (business entities) can produce or provide at a specific period of time. Also, when an inflationary gap occurs in an economy, there would be an increase in the price of goods and services and thus, causing the economy to be out of equilibrium.