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Distinguish between inflationary and deflationary gap

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Distinguish between inflationary and deflationary gap

    • Posted by Shilpi Tudu 4 years, 9 months ago

    CBSE > Class 12 > Economics
    • 1 answers

    Sia ? 4 years, 9 months ago

    Differences between the inflationary gap and deflationary gap.

    Basis Inflationary Gap Deflationary Gap
    Meaning The excess of aggregate demand above the level that is required to maintain full employment level of equilibrium is termed as inflationary gap. The shortfall of aggregate demand below the level that is required to maintain full employment level of equilibrium is termed as a deflationary gap.
    Effect Inflationary gap causes inflation and increases wages and price level in the economy. Deflationary gap causes deflation and decreases wages and price level in the economy.
    Causes

    Some of the causes are as follows:

    • Rise in one or more components of AD
    • Fall in tax rate
    • Rise in money supply

    Some of the causes are as follows:

    • Fall in one or more components of AD
    • Rise in tax rate
    • Fall in money supply

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    ANSWER
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