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प्रश्न
What is meant by inflationary gap?
Explain the concept of inflationary gap.
Explain briefly the concept of inflationary gap. Use diagram.
Explain the concept of inflationary gap with the help of a suitable diagram.
Explain the concept of inflationary gap with the help of a diagram. What is its impact on output?
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उत्तर १
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., a situation of an inflationary gap (FY − EY = FE).
उत्तर २
To put it another way, excess demand occurs when actual aggregate demand in an economy exceeds aggregate supply at full employment. When the economy is at full employment, excess demand cannot be eliminated because existing resources are already completely utilized. This additional demand will drive up the price level. A high level of aggregate spending relative to full employment output will result in shortages of items in the economy, driving up prices and causing inflation. Thus, extra demand has no effect on the quantity of output or employment in the economy but does cause inflation. This is why excess demand (or gap) is referred to as the “inflationary gap.” Inflationary gap refers to the amount by which actual aggregate demand exceeds aggregate supply at full employment. Thus, the inflationary gap represents the amount of surplus demand in the economy.
Notes
Students should refer to the answer according to their questions.
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संबंधित प्रश्न
What is meant by aggregate demand?
State components of aggregate demand.
Explain how government spending can be helpful in removing deficient demand.
Derive the two alternative conditions of expressing national income equilibrium. Show these equilibrium conditions on a single diagram.
Aggregate demand can be increased by ______
Explain the role of Repo Rate in reducing the Inflationary gap.
What is a ‘consumption function’?
How will you derive the autonomous expenditure multiplier when the price of final goods and the rate of interest are given?
Fill in the blank with appropriate alternatives given below
The General Theory of Employment, Interest and Money was written by __________.
Fill in the blank with appropriate alternatives given below
That part of income, which is not spent on consumption, is called __________.
Define or Explain the following concept:
Aggregate Demand
Answer the following question:
What are the determinants of Aggregate Supply (AS)?
Write explanatory answer.
What is 'aggregate supply'? Explain the determinants of aggregate supply.
Discuss the working of the adjustment mechanism in the following situations:
Aggregate demand is greater than the aggregate supply.
In a closed economy, aggregate demand is the sum of ______.
The difference between the Aggregate Demand at above full employment and Aggregate Demand at full employment is known as ______
When the value of the currency falls as compared to other currencies, it is ______
What is the circumstance when aggregate output is determined solely by the level of aggregate demand called?
“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.
