Explain the meaning and implications of …
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Yogita Ingle 6 years, 1 month ago
The extent to which current Aggregate Demand becomes higher than the Aggregate Demand required for full employment, it is termed as inflationary gap. Figure showing inflationary gap:
In this figure, full employment equilibrium struck at point E. If the level of demand increases to {tex}{{AD}_{1}}{/tex}
it is in excess of what is required to maintain full employment. This causes inflation. Inflationary Gap = EF (the difference between AD and {tex} {{AD}_{1}}{/tex}.
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