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    Deflationary Gap & Inflationary Gap

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    Nadiah

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    © All Rights Reserved
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    Deflationary Gap & Inflationary Gap

    Uploaded by

    Nadiah
    12 views2 pages

    Original Title

    c3 Handout (Gap)

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    12 views2 pages

    Deflationary Gap & Inflationary Gap

    Uploaded by

    Nadiah

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    C3 HANDOUT

    Deflationary Gap & Inflationary Gap

    DEFLATIONARY GAP INFLATIONARY GAP


    DEFINITION
    Ye < Yfe Ye > Yfe
    National income equilibrium < national National income equilibrium > national income equilibrium
    income equilibrium at full employment at full employment
    CAUSES
    AD = AS I=S AD = AS I=S
     Deficiency in  Total  Increase in general price level  Total injections
    spending withdrawal > @ nominal income (not real > total
     Resources are not total injection increases in goods & services) withdrawal
    fully utilized  Excess demand (AD increase)
     Any increases in  When AD (C+I+G+(X-M))
    Ye is a real above Fe, there is inflationary

    1
    Page
    increase gap
     When AD
    (C+I+G+(X-M))
    is below Fe, there
    is deflationary
    gap

    ECO 211/NORANITA/ECONOMICS LECTURER


    C3 HANDOUT

    TO CLOSE
    Combination of the two policy until Ye = Yfe
    AD = AS I=S AD = AS I=S
    Expand more but not toward inflation Deliberate government policy of deflation
     Expansionary  Injection  Deflationary/Contractionary  Injection
    Monetary policy Withdrawal Monetary policy ( Withdrawal
    (Ms , r ) Ms , r )
     Expansionary  Deflationary/Contractionary
    Fiscal policy Fiscal policy ( G T )
    (G T )
    GRAPH
    AD = AS I=S AD = AS I=S

    2
    Page
    Y Yfe
    Yfe Y
    Y Yfe Yfe Y

    ECO 211/NORANITA/ECONOMICS LECTURER

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