Part B Question 2

Suppose a closed economy (an economy that does not engage in international trade) is described in the following table.

Year	Potential GDP	Real GDP	Price Level
1	$1200 billion	$1200 billion	100
2	$1200 billion	$1400 billion	108

(a) Describe the economic situation in this economy in year 2. What might have caused this problem? (2 marks)