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UI Post-UTME Economics 2019 (Model questions) Question 20

Question 20

National Income

Use the diagram (AS and AD against income, with equilibrium at E and angles X and K) to answer this question. What does X represent?

Diagram for this question
  1. A.GNP gap
  2. B.Inflationary gap
  3. C.Deflationary gap
  4. D.Recessionary gap
Show the answer and explanation

Answer: B (Inflationary gap)

Explanation

Before E aggregate demand is above aggregate supply; that excess, X, is the inflationary gap.