ECONOMICS
GDP
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Nothing, the economy is growing.
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The possibility of an increase in the inflation rate.
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The possibility of an increase in the unemployment rate.
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The possibility of rising levels of poverty.
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Detailed explanation-1: -The inflationary gap represents the point in the business cycle when the economy expands as consumers purchase more goods and services. As demand increases but production lags, prices rise to restore market equilibrium. The real GDP must be higher than the potential GDP for the gap to be considered inflationary.
Detailed explanation-2: -This is called the output gap. If real GDP falls short of potential GDP (i.e., if the output gap is negative), it means demand for goods and services is weak. It’s a sign that the economy may not be at full employment.
Detailed explanation-3: -Thus, the quantity theory of money states that when real GDP equals potential GDP, an increase in the quantity of money brings an equal percentage increase in the price level.
Detailed explanation-4: -In the given scenario, the real GDP is greater than the potential GDP suggesting that the economy is operating with an unemployment rate that is less than the natural unemployment rate. Also, the real GDP is higher than the potential GDP suggesting that the output gap is positive.