According to the labeling on the attached graph, the size of the inflationary gap is equal to: Y1 – YP. The correct answer is option B.
Although part of your question is missing, you might be referring to this full question: (Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. It reflects a short-run inflationary gap. According to the labeling on the graph, the size of the inflationary gap is equal to:
A) P2 - P1.
B) Y1 - YP.
C) P2 - P0.
D) P1 - P0.
An inflationary gap is a macroeconomic concept that measures the difference between the current level of real gross domestic product (GDP) and the GDP which would exist if an economy was operating at full employment. For the gap to be considered inflationary, the current real GDP have to be higher than the potential GDP. It is called inflationary because it leads to inflation (continuous rise in prices). An inflationary gap refers to the positive difference among real GDP and potential GDP at full employment.
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