If actual output exceeds potential output, the economy is experiencing an inflationary gap.
Hence, option A is correct.
What is potential output and real output?
Actual output can be defined as the growth that has actually happened in real life. Potential output explains how much growth the economy could achieve. Potential output can be seen the size of the labor force, the capital, and the state of technology. It is important for the business cycle—economic expansions and contractions, or recessions
The difference between actual output and potential output is known as the output gap.
Hence, If actual output exceeds potential output, the economy is experiencing an inflationary gap.
Hence, option A is correct.
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