Question

What is 'inflation gap'? Explain the role of 'margin requirement 'in moving the gap?

Answer 1

Inflation gap refers to a situation when real gross domestic product (GDP) is less than an expected gross domestic product if the economy is running smoothly. This occurs when demand of goods increases as compared to production of good. This is caused by several factors :

• High trade

• Increased government expenditure

This causes prices to rise in future.

Margin requirement helps in reducing inflatory gap as through this investors are bound to pay some securities from their own pockets. It has two types :

• Initial margin requirements

• Maintenance margin requirements