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What is deflationary gap??Answer fast |
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Answer» Definition deflationary gap – This is the difference between the full employment level of output and ACTUAL output. For example, in a recession, the deflationary gap may be quite substantial, indicative of the high rates of unemployment and underused RESOURCES. A deflationary gap is also known as a negative output gap.Causes of deflationary gapFall in aggregate demand (AD) DUE toFall in exports (global recession)Fall in investment (due to banking collapse and credit CRUNCH)Fall in consumer spending (e.g. higher interest rates, FALLING wages.)Economic growth well below the average trend rate of growth (AD increasing at slower rate than productive capacity) |
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