Asked by Clayton Scheutzow on Jun 09, 2024
Verified
The more the short-run output exceeds an economy's potential,_____.
A) the smaller the expansionary gap
B) the greater the upward pressure on the price level
C) the larger the recessionary gap
D) the greater the downward pressure on the price level
E) the lesser the demand for resources
Expansionary Gap
A situation where the actual output of an economy exceeds its potential output, often leading to inflationary pressures.
Recessionary Gap
The situation where an economy's real GDP is less than its potential GDP, leading to underutilization of resources and unemployment.
Short-Run Output
The production level of goods and services in the short term, often under fixed conditions or capacities.
- Describe how price levels and output are related in the short-run.
- Gain insight into the repercussions of expansionary and recessionary gaps in short-term economic conditions.
Verified Answer
BK
Brandon KipperJun 09, 2024
Final Answer :
B
Explanation :
When short-run output exceeds an economy's potential, it leads to an inflationary gap, which puts upward pressure on the price level. This is because the excess demand for goods and services leads to firms increasing their prices to take advantage of the situation.
Learning Objectives
- Describe how price levels and output are related in the short-run.
- Gain insight into the repercussions of expansionary and recessionary gaps in short-term economic conditions.