Final answer:
An inflationary gap in the AD/AS model occurs when there is an increase in aggregate demand while the economy is at potential output. The result is a higher price level - inflation - without an increase in real GDP, as the economy's output capacity is fully utilized.
Step-by-step explanation:
An inflationary gap occurs in the AD/AS model when the aggregate demand (AD) increases while the economy is at or near potential output, which is the level of real GDP at full employment. The aggregate supply (AS) curve is typically vertical at potential GDP, indicating that the economy's capacity to produce goods and services is fully utilized and cannot increase further in the short run. An increase in AD under these circumstances will push the price level up, leading to inflation, without resulting in a higher real GDP.
In a graphical representation of the AD/AS model, an inflationary gap can be demonstrated by drawing a new AD curve (AD₁) to the right of the initial AD curve (AD₀). The new equilibrium (E₁) will be at a higher price level compared to the original equilibrium (E₀), indicating that the economy has experienced inflation as a result of increased aggregate demand.