Question

Explain any one measure to remove the deflationary gap.

Answer 1

A deflationary gap occurs when aggregate demand is less than aggregate supply at the full employment level. To reduce this gap, the government can increase public expenditure on infrastructure, social welfare schemes, subsidies, and public works (like roads, hospitals, schools, etc.).

• Increased employment and income
• Higher consumer spending
• Boost in aggregate demand

As a result, the deficient demand in the economy is corrected, and the economy moves back toward the full employment level.