An Inflationary Gap

question 133

Multiple Choice

An inflationary gap:

• A) is generally regarded as desirable, especially by people living on a fixed income.
• B) means that the economy is operating beyond its potential output.
• C) means that there are pressures for wages to fall.
• D) means that SRAS will soon shift rightward.

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Definitions:

Supply

represents the total amount of a product or service that is available for purchase at any given price in a market.

Price Change

Price change refers to the variation in the cost of goods and services over time.

Equilibrium Price

The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall.

Relatively Inelastic

Describes a situation where the demand for a good or service changes by a smaller percentage than changes in its price, indicating consumers' less sensitive response to price changes.