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Actual aggregate demand’s gap from that needed to achieve full employment equilibrium is referred to as:
- a)Surplus supply
- b)Deflationary gap
- c)Inflationary gap
- d)Excess supply
Correct answer is option 'B'. Can you explain this answer?
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Actual aggregate demand’s gap from that needed to achieve full e...
Deflationary Gap Explanation:
The actual aggregate demand in an economy might not always align perfectly with the level needed to achieve full employment equilibrium. When the actual aggregate demand falls short of what is required to reach full employment, it creates a gap known as a deflationary gap.
Causes of Deflationary Gap:
- Decrease in consumer spending
- Decline in business investments
- Increase in savings rate
- Government austerity measures
- External shocks such as a global recession
Consequences of Deflationary Gap:
- Unemployment and underutilization of resources
- Reduced income levels for households
- Decline in overall economic output
- Potential deflationary pressures on prices
Corrective Measures:
- Monetary policy interventions such as lowering interest rates to stimulate borrowing and spending
- Fiscal policy measures like increased government spending or tax cuts to boost aggregate demand
- Implementing structural reforms to enhance productivity and competitiveness
- Encouraging investments through incentives and infrastructure development
In conclusion, a deflationary gap indicates an imbalance in the economy's aggregate demand and highlights the need for policy interventions to stimulate economic activity and move towards full employment equilibrium.
The actual aggregate demand in an economy might not always align perfectly with the level needed to achieve full employment equilibrium. When the actual aggregate demand falls short of what is required to reach full employment, it creates a gap known as a deflationary gap.
Causes of Deflationary Gap:
- Decrease in consumer spending
- Decline in business investments
- Increase in savings rate
- Government austerity measures
- External shocks such as a global recession
Consequences of Deflationary Gap:
- Unemployment and underutilization of resources
- Reduced income levels for households
- Decline in overall economic output
- Potential deflationary pressures on prices
Corrective Measures:
- Monetary policy interventions such as lowering interest rates to stimulate borrowing and spending
- Fiscal policy measures like increased government spending or tax cuts to boost aggregate demand
- Implementing structural reforms to enhance productivity and competitiveness
- Encouraging investments through incentives and infrastructure development
In conclusion, a deflationary gap indicates an imbalance in the economy's aggregate demand and highlights the need for policy interventions to stimulate economic activity and move towards full employment equilibrium.
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Actual aggregate demand’s gap from that needed to achieve full e...
Deflationary Gap is the amount by which the aggregate demand falls short of aggregate supply at the full employment level. It is called deflationary because it leads to a fall in the price level.
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Actual aggregate demand’s gap from that needed to achieve full employment equilibrium is referred to as:a)Surplus supplyb)Deflationary gapc)Inflationary gapd)Excess supplyCorrect answer is option 'B'. Can you explain this answer?
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