The lsquo difference between the Aggregate Demand at above full employment and Aggregate Demand at f...........

The ‘difference between the Aggregate Demand at above full employment and Aggregate Demand at full employment is known as:

Inflationary Gap

Deflationary Gap

Both (a) and (b)

None of the above

- Inflationary Gap:

- Occurs when Aggregate Demand exceeds the economy's productive capacity.

- Happens when resources are fully utilized, causing upward pressure on prices.

- Indicates an overheated economy.

- Deflationary Gap:

- Exists when Aggregate Demand is below the level needed for full employment.

- Leads to unused capacity and potential unemployment.

- Indicated by downward pressure on prices.

- Both (a) and (b):

- This option doesn’t make sense as both gaps can't occur simultaneously.

- None of the above:

- Would be true only if neither gap were applicable to the given situation.

Correct Answer: Option 1, Inflationary Gap

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