Answer: A recessionary gap exists when the economy is in a below full-employment equilibrium when potential GDP exceeds real GDP. The recessionary gap is the amount by which potential GDP exceeds real GDP. An inflationary gap occurs when the economy is in an above full-employment equilibrium when real GDP exceeds potential GDP. In this case, the inflationary gap is the difference between real GDP and potential GDP.
A recessionary gap is a term routed in macroeconomic theory that summarizes the situation where an economy is operating at below its full-employment equilibrium. Under this condition, the level of real gross domestic product (GDP) is currently lower then it is at full-employment, which puts downward pressure on prices in the long run.
An inflationary gap is a macroeconomic condition that describes the distance between the current level of real gross domestic product (GDP) and full employment (long run equilibrium) real GDP. The inflationary gap is so named because the relative increase in real GDP causes an economy to increase its consumption, which causes prices to rise in the long run.
An inflationary gap occurs when the economy is in a condition of above full-employment equilbrium. It happens when real GDP exceeds potential GDP. On the contrary, recessionary gap occurs when the economy is in a condition of below-full employment equlbrum. That is, when potential GDP exceeds real GDP.
Answer:
ReplyDeleteA recessionary gap exists when the economy is in a below full-employment equilibrium when potential GDP exceeds real GDP. The recessionary gap is the amount by which potential GDP exceeds real GDP. An inflationary gap occurs when the economy is in an above full-employment equilibrium when real GDP exceeds potential GDP. In this case, the inflationary gap is the difference between real GDP and potential GDP.
A recessionary gap is a term routed in macroeconomic theory that summarizes the situation where an economy is operating at below its full-employment equilibrium. Under this condition, the level of real gross domestic product (GDP) is currently lower then it is at full-employment, which puts downward pressure on prices in the long run.
ReplyDeleteAn inflationary gap is a macroeconomic condition that describes the distance between the current level of real gross domestic product (GDP) and full employment (long run equilibrium) real GDP. The inflationary gap is so named because the relative increase in real GDP causes an economy to increase its consumption, which causes prices to rise in the long run.
ReplyDeleteAn inflationary gap occurs when the economy is in a condition of above full-employment equilbrium. It happens when real GDP exceeds potential GDP.
ReplyDeleteOn the contrary, recessionary gap occurs when the economy is in a condition of below-full employment equlbrum. That is, when potential GDP exceeds real GDP.