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Inflationary Gap:
- Inflationary gap is the amount by which the actual aggregate demand exceeds ‘aggregate supply at level of full employment’.
- It is a measure of the excess of aggregate demand over level of output at full employment. Inflationary gap causes a rise in price level which is called inflation.
Deflationary Gap:
- Deflationary gap is the amount by which actual aggregate demand falls short of aggregate supply at level of full employment’
- It is a measure of amount of deficiency of aggregate demand. Deflationary gap causes a decline in output, income and employment along with persistent fall in prices.
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Syed Khabib 7 years, 1 month ago
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