Advertisements
Advertisements
Questions
What is meant by inflationary gap?
Explain the concept of Inflationary Gap
What is 'inflationary gap'?
Define inflationary gap.
Solution
Inflationary gap
Excess demand occurs in a situation when aggregate demand is more than aggregate supply corresponding to full employment. It leads to the reduction in inventories and inflation in the economy. This situation is considered an inflationary gap—the difference between aggregate demand beyond full employment and aggregate demand at full employment.
Aggregate demand is the AD curve and aggregate supply is the AS curve (as shown in the diagram below). While the aggregate demand curve and the aggregate supply curve intersect each other, the full employment equilibrium is attained at Point E. OY is the full employment level of output, and EY is the aggregate demand at full employment level of output. If the aggregate demand increases beyond the full employment level of output from EY to FY, then the economy will have excess demand, i.e. situation of an inflationary gap (FY − EY = FE).
APPEARS IN
RELATED QUESTIONS
Given consumption curve, derive saving curve and state the steps taken in the process of derivation. Use Diagram.
State three measures to reduce inflationary gap.
Aggregate demand can be increased by ______
Explain the role of 'Open Market Operations' in reducing Deflationary Gap
What are the determinats of Aggregate demand ?
Explain the following concepts or give definitions.
Depreciation
Define or Explain the following concept:
Aggregate Demand
Answer in detail.
Explain the determinants of aggregate demand.
Answer in detail.
Explain the equilibrium between Aggregate Demand and Aggregate Supply.
Answer the following question.
Explain the concept of deficient demand with the help of aggregate demand and aggregate supply curves. Discuss one physical and one monetary measure to correct it.
The main component of aggregate demand is ______
In case of an under-employment equilibrium, which of the following alternatives is not true?
Identify the correctly matched pair from Column A to Column B:
| Column A | Column B |
| (1) Y = AD | (a) Level of output at full employment |
| (2) Forward Multiplier | (b) Withdrawal of investment decreases income |
| (3) Paradox of Thrift | (c) People save less or same as before |
| (4) Multiplier (k) < 1 | (d) 0 < MPC < 1 |
When the value of the currency falls as compared to other currencies, it is ______
A decrease in Cash Reserve Ratio will lead to ______
Aggregate demand can be increased by:
“In an economy ex-ante Aggregate Demand is less than ex-ante Aggregate Supply.”
Explain its impact on the level of output, income and employment.
With reference to Simple Keynesian model, give the meaning of ex-ante demand.
