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Unformatted text preview: initial real wage exceeds this equilibrium value. The gap between the level of real GDP and potential output, when real GDP is less than potential. An inflationary gap exists when equilibrium income is greater than full employment income. In such a case, workers would compete against one another to get resources with which to produce the output that is demanded, and costs would rise, with prices following them up. The nominal wage will rise as long as there is an inflationary gap....
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- Spring '09