Q-Differentiate between inflationary and deflationary gap(6m) Please provide the answer in tabular form - Economics - Determination of Income and Employment

Question

Q-Differentiate between inflationary and deflationary gap(6m)
Please provide the answer in tabular form?

Shvetika Sharma · Accepted Answer

Basis
of Difference

Deflationary
Gap

Inflationary
Gap

Meaning

In the
situation of deficit demand, i e when the actual aggregate demand
for output is less than the full employment level of output, there
arises a tendency for the price and the output level to fall This
is because due to deficit demand producers experience piling up of
unsold stock of goods and therefore tend to reduce the output and
the price level This leads to deflationary gap

In the
situation of excess demand, i e when the actual aggregate demand
for output is above the full employment level of output there
arises a tendency for the prices to rise This is because the
production cannot be increased beyond the full employment level of
output and thereby, leads to inflationary gap

Causes

Some
of the causes are as follows

Fall
in one or more components of AD
Rise
in tax rate
Fall
in money supply

Some
of the causes are as follows

Rise
in one or more components of AD
Fall
in tax rate
Rise
in money supply

Consequence

Leads
to a vicious circle of deficit demand

Leads
to wage-price spiral

Corrected
by

Some
of the measures to correct deflationary gap are:

Reducing
tax rate
Reducing
bank rate

Some
of the measures to correct inflationary gap are:

Raising
tax rate
Raising
bank rate

Basis of Difference	Deflationary Gap	Inflationary Gap
Meaning	In the situation of deficit demand, i.e. when the actual aggregate demand for output is less than the full employment level of output, there arises a tendency for the price and the output level to fall. This is because due to deficit demand producers experience piling up of unsold stock of goods and therefore tend to reduce the output and the price level. This leads to deflationary gap.	In the situation of excess demand, i.e. when the actual aggregate demand for output is above the full employment level of output there arises a tendency for the prices to rise. This is because the production cannot be increased beyond the full employment level of output and thereby, leads to inflationary gap
Causes	Some of the causes are as follows. Fall in one or more components of AD Rise in tax rate Fall in money supply	Some of the causes are as follows. Rise in one or more components of AD Fall in tax rate Rise in money supply
Consequence	Leads to a vicious circle of deficit demand	Leads to wage-price spiral
Corrected by	Some of the measures to correct deflationary gap are: Reducing tax rate Reducing bank rate	Some of the measures to correct inflationary gap are: Raising tax rate Raising bank rate

Q-Differentiate between inflationary and deflationary gap(6m) Please provide the answer in tabular form?