An Inflationary Gap Will Exist When

question 190

Multiple Choice

An inflationary gap will exist when

• A)aggregate demand grows more slowly than aggregate supply.
• B)there is downward pressure on prices.
• C)expenditures are not equal to aggregate demand.
• D)equilibrium GDP is greater than full employment GDP.

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Definitions:

Price Floor

A government- or group-imposed price control or limit on how low a price can be charged for a product.

Equilibrium Price

The cost factor at which the supply side and demand side of goods reach an equilibrium in the market.

Market Surplus

A situation where the quantity of a good or service supplied exceeds the quantity demanded at the current price, often leading to price reductions.

Binding Price Floor

A government-imposed price control that sets a minimum price for a good or service, above the equilibrium price, causing a surplus.