Question

Explain inflationary gap using diagram. What are the effects of inflationary gap on the employment, output and prices of the economy? To correct the inflationary gap what steps should be taken?​

Answer 1

Answer:

The self-correction mechanism acts to close an inflationary gap with higher wages and a decrease in the short-run aggregate supply curve. ... The key to this process is that changes in wages and other resource prices cause the short-run aggregate supply curve to shift.