High School

An expansionary gap is equal to ________.

1) GDP minus nominal GDP
2) nominal GDP minus real GDP
3) short-run output minus potential output
4) period's nominal GDP minus last period's nominal GDP
5) period's real GDP minus last period's real GDP

Answer :

Final answer:

An expansionary gap is defined as the difference between 3. short-run output and potential output, suggesting an economy that is operating above its full capacity and can lead to inflation.

Explanation:

An expansionary gap is equal to 3. short-run output minus potential output. This can also be referred to as an inflationary gap, which occurs when the real GDP is greater than the potential GDP. This scenario indicates an economy that is operating above its long-term sustainable level of activity, which can lead to inflation due to the excess demand in the economy.

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