Question:
In an economy with a positive output gap
(1) there is an unutilized productive capacity.
(2) there is cyclical unemployment.
(3) actual output is less than potential output.
(4) there is a slowdown in the pace of economic activities.
(5) demand-pull inflationary pressures exist.
Correct Answer:
(5)
Answer Explanation:
A positive output gap occurs when actual economic output exceeds the economy’s maximum potential output (operating beyond full capacity). This intense level of economic activity and high aggregate demand forces prices up, creating significant demand-pull inflationary pressures.
Topic: Macroeconomics Year: 2020
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