What do you understand by a lsquo deflationary Gap rsquo in the economy ........

Economic Affairs Inflation

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What do you understand by a ‘deflationary Gap’ in the economy?

Underproduction with respect to full employment GDP of the economy

Consistent decline in inflation at an exponential rate

Low Inflation that encourages investments

Excess supply of goods and services with respect to the weak demand in the economy

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Explanation:

Deflationary gap is the amount by which actual aggregate demand falls short of aggregate supply at level of full employment.
It is a measure of amount of deficiency of aggregate demand.
Deflationary gap causes a decline in output, income and employment along with persistent fall in prices.
On the other hand, an inflationary gap is a signal that the economy is in the boom part of the trade cycle, resources are being used over their capacity, factories are operating with increasing average costs; wage rates increase because labour is used beyond normal hours at overtime pay rates.