Macroeconomic Objectives and National Income Accounting Practice Questions | A-Level Economics

Macroeconomic Objectives and National Income Accounting

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An economy is estimated to have potential output of$520billion. Actual output is$540billion, and nominal wages are rising faster than labor productivity. Which diagnosis and most likely short-run policy trade-off is correct?

Select one option.

Deflationary gap; loosening policy raises unemployment
Deflationary gap; loosening policy reduces inflation
Inflationary gap; tightening policy raises unemployment
Inflationary gap; loosening policy reduces inflation
No output gap; policy has no inflation implication

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