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In the situation of the deflationary gap:
Demand increases rapidly
Supply increase rapidly
Both demand and supply are equal
All of these
Let’s break it down:
- Option 1: Demand increases rapidly—This doesn’t cause a deflationary gap. In fact, rising demand usually pushes prices up, possibly leading to inflation.
- Option 2: Supply increases rapidly—Getting closer. If supply jumps ahead of demand, a deflationary gap can appear because there’s more stuff than people want to buy.
- Option 3: Both demand and supply are equal—If supply matches demand, there’s no gap at all. The economy's balanced.
- Option 4: All of these—Not quite. Only a rapid increase in supply (with weaker demand) actually creates the deflationary gap.
The right answer is Option 2.
By: santosh ProfileResourcesReport error
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