There Is an Inflationary Gap When

question 152

Multiple Choice

There is an inflationary gap when

• A) real GDP is above potential GDP.
• B) potential GDP is above real GDP.
• C) real GDP per hour of labour is increasing.
• D) real GDP per person is increasing.
• E) potential GDP is increasing.

---

Definitions:

Equilibrium

A state in which market supply and demand balance each other, and as a result, prices become stable.

Quantity Demanded

The total amount of a good or service that consumers are willing to buy at a given price over a specified period.

Marginal Tax Rates

The rate at which an additional dollar of income is taxed, showing the percentage of tax applied to your income for each tax bracket you pass through.

Laffer Curve

A theoretical representation of the relationship between tax rates and government revenue, suggesting there is an optimal tax rate that maximizes revenue.