Q1. What is an inflationary gap? Graph and explain how this occurs and give examples of reasons why this could take place. The same for a recessionary gap.

Q2. What is meant by a stronger dollar on international markets? How is that value determined? (see Giuili video for this chapter). How will this affect the AD in the US?

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Solution Q1 Inflationary and Recessionary Gaps What is an inflationary gap An inflationary gap occurs when the Aggregate Demand AD within an economy exceeds the economys ability to produce goods and s... View the full answer