Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Actual unemployment being lower than the natural rate
B
A decrease in consumer spending
C
An increase in interest rates
D
A rise in global oil prices
Understanding the Answer
Let's break down why this is correct
Answer
An inflationary gap occurs when the demand for goods and services in an economy exceeds its ability to produce them. This high demand can lead to increased prices because businesses cannot keep up with the consumers wanting more. For example, if many people suddenly want to buy new cars, but factories can only produce a limited number, the prices of cars will rise due to the competition among buyers. This situation often happens when the economy is growing quickly and people have more money to spend, leading to low unemployment and higher wages. In summary, the main cause of an inflationary gap is when demand outpaces supply, pushing prices up.
Detailed Explanation
An inflationary gap happens when actual unemployment is lower than the natural rate. Other options are incorrect because Some might think that less spending causes inflation; It's a common mistake to think that higher interest rates cause inflation.
Key Concepts
Inflationary Gaps
Unemployment
Phillips Curve
Topic
Inflationary Gaps and Unemployment
Difficulty
easy level question
Cognitive Level
understand
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