Chapter 13, Problem 10P

To determine

1. The gap that exists at point A
2. The change in government spending that could eliminate the gap at point A

Concept introduction:

Aggregate Supply (AS): AS is the total dollar value of goods and services produced by an economy during a given period of time.

Aggregate Demand (AD): AD is the total dollar value of goods and services demanded in an economy during a given period of time.

Real Gross Domestic Product (Real GDP): Real GDP is the total dollar value of all final goods and services produced in an economy during a given period of time, measured at base-year prices.

Inflationary gap: Inflationary gap is the excess of actual aggregate supply over potential aggregate supply. It arises when AD exceeds full-employment AS.