Assume an economy moves from E1 to e2 to E3. Which of the following statements accurately describes the situation shown?
a. The economy is temporarily in an inflationary gap at E1.
b. At e2 the actual real GDP is less than the potential output.
c. The economy is in an inflationary gap at e2.
d. At e3 the price level has decreased from PL1.
Ans: C
c. The economy is in an inflationary gap at e2.
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