In the figure, the inflationary gap when AD2 is the aggregate demand curve equals

The complete question is

In the above figure, the inflationary gap when AD2 is the aggregate demand curve equals

A) the difference between 110 and 100.

B) the difference between $12.5 trillion and $12.0 trillion.

C) LAS minus SAS at a price level of 100.

D) AD1.

The Answer is option B the difference between $12.5 trillion and $12.0 trllion.

Explanation:

The inflationary gap is calculated by subtracting anticipated GDP from real GDP of the economy. The x-axis represent the national income and y-axis represent the expenditure.

It is the excess of aggregate demand over its level required to maintain full employment equilibrium in the economy. in the figure AD2 represents the aggregate demand curve.

Thus, inflationary gap when AD2 is aggregate the demand curve equals the difference between $12.5 trillion and $12.0 trillion.

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