ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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when output goes beyond full employment
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when output falls below full employment
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when unemployment increases
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when deflation is present in an economy
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Detailed explanation-1: -An inflationary gap is a difference between the gross domestic product (GDP) under full employment and the actual reported GDP number. It represents the extra output as measured by GDP between what it would be under the natural rate of unemployment and the reported GDP number.
Detailed explanation-2: -Inflationary gap Since job seekers are less than job openings in the market, employers are forced to raise the wage to attract new workers. High wage will decrease the AS, and raise the price. Higher price will lower consumption. This process will repeat until the long run equilibrium is reached.
Detailed explanation-3: -In this context, the output gap is a summary indicator of the relative demand and supply components of economic activity. As such, the output gap measures the degree of inflation pressure in the economy and is an important link between the real side of the economy-which produces goods and services-and inflation.
Detailed explanation-4: -If the demand for products is greater than the capacity to supply them for a period of time, there is a positive output gap. A positive output gap usually results in: higher inflation. lower unemployment.
Detailed explanation-5: -In economics, an inflationary gap refers to the positive difference between the real GDP and potential GDP at full employment. The concept was invented by John Maynard Keynes to help identify the economy’s position in the business cycle.