What is the difference between recessionary gap and inflationary gap?
What is the difference between recessionary gap and inflationary gap?
When the aggregate demand and short-run aggregate supply curves intersect below potential output, the economy has a recessionary gap. When they intersect above potential output, the economy has an inflationary gap.
What is the difference between a recession and a recessionary gap?
Recession refers to a general slowdown in economic activities, i.e. a business cycle contraction. Generally, a recessionary gap occurs when an economy is approaching recession.
How do recessionary and inflationary GDP gap arise?
What is meant by inflationary gap?
What Is an Inflationary Gap? An inflationary gap is a macroeconomic concept that measures the difference between the current level of real gross domestic product (GDP) and the GDP that would exist if an economy was operating at full employment.
What is meant by the inflationary gap?
An inflationary gap measures the difference between the current level of real GDP and the GDP that would exist if an economy was operating at full employment. For the gap to be considered inflationary, the current real GDP must be higher than the potential GDP.
When there is an inflationary gap?
An inflationary gap occurs when the economy is operating above full employment. 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. Think of it as the rise in GDP driven by inflation.
What is a recessionary gap graph?
In simpler words, we can say the this is the gap between actual production and the full employment output when the actual output is leer than the natural level of output. Source: Recessionary Gap (wallstreetmojo.com) The below recessionary gap graph depicts this situation.
Is deflationary gap and recessionary gap the same?
When the potential GDP is higher than the real GDP, the gap is instead referred to as a deflationary gap. The other type of output gap is the recessionary gap, which describes an economy operating below its full-employment equilibrium.
What are the results of a recessionary gap?
Effects of Recessionary Gap The effects of this gap increase the unemployment level in the economy, as the economy is creating lesser than the natural GDP growth level. It also results in lower production and lower economic growth.
What causes an inflationary gap?
An inflationary gap exists when the demand for goods and services exceeds production due to factors such as higher levels of overall employment, increased trade activities, or elevated government expenditure. Against this backdrop, the real GDP can exceed the potential GDP, resulting in an inflationary gap.