Differentiate between inflationary gap and deflationary …

Inflationary gap is refers to the demand are more than the supply and they also effected on country currency because the inflationary gab are increased those condition the given country currency are depreciated and the inflation gap is high. Deflationary gap are refers to supply is more than the demand And they are opposite to inflationary gap In these condition the given country currency will appreciated.

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