Question

When the macroeconomic equilibrium is such that real GDP exceeds potential real GDP, the economy is suffering from ________, and the government policy to eliminate this gap will ________ real GDP and ________ the price level.?

Answer 1

Base on my research, the gap that is stated in the problem is the inflationary gap. This is the amount of the real GDP go beyond potential full-employment GDP. Upon eliminating this gap the government forms a policy that will allow the potential GDP to be equal to the real GDP and higher the price level.