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Describe the occurrence of an inflationary gap in the economy

Describe the occurrence of an inflationary gap in the economy

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Dana
Inflationary gap is the amount by which the aggregate demand rises above the level necessary for full employment in the economy. Inflationary gap occurs when an increase in spending moves the economy away from the equilibrium at full employment. The new equilibrium is unattainable since all resources are utilized at the equilibrium attained at full employment. This implies that people have more money chasing fewer goods and services hence the prices of products increase pushing up the nominal national income. This leads to inflation and the difference between the two levels of national income is referred to as the inflationary gap
Dana05 answered the question on August 14, 2019 at 07:06

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