Question

Explain the meaning of Inflationary Gap and Deflationary Gap. Explain any one measure by which these gaps can be reduced.

Answer 1

Inflationary gap is when the aggregate demand exceeds the productive potential of the economy. ... For deflationary gap all the resources of the economy are not being used to the optimum level and some are idle. This comes with unemployment and low levels of output.

Answer 2

Answer:

Declarationary gap is the shortfall in AD from the level required to maintain the full employment in the economy.

Inflationary gap is the excess of AD over and above its level required to maintain full employment equilibrium in the economy

Explanation: