Association of Chartered Certified Accountants (ACCA) Certification Practice Test 2026 - Free ACCA Practice Questions and Study Guide

During an inflationary gap, economic activity is higher than the economy's potential output. This situation typically occurs when demand for goods and services exceeds supply, which places upward pressure on prices. As consumers and businesses compete for limited resources, the increased demand leads to higher prices for goods and services in the economy. Therefore, it is common to see a trend where prices tend to rise during an inflationary gap, reflecting the excess demand in relation to supply.