Question

The amount by which the actual aggregate demand exceeds the aggregate supply corresponding to the full employment level in the economy is known as ______.

Options

• excess demand

• inflationary gap

• excess capacity

• both (a) and (b)

Answer 1

The amount by which the actual aggregate demand exceeds the aggregate supply corresponding to the full employment level in the economy is known as excess demand and inflationary gap.

Explanation:

When aggregate demand exceeds aggregate supply at full employment, it leads to excess demand or an inflationary gap. This causes upward pressure on prices, leading to demand-pull inflation in the economy.