Question

Explain a recessionary expenditures gap. Explain an inflationary expenditures gap. Which is more likely to occur during a negative GDP gap and which is more likely to be associated with a positive GDP gap?

Answer 1

Answer:-

A recessionary expenditure gap is the amount by which aggregate expenditures at the full employment GDP fall short of those required to achieve the full employment GDP. Insufficient total spending contracts or depresses the economy. This also is referred to as a negative GDP gap.

Economists use the term inflationary expenditure gap to describe the amount by which an economy's aggregate expenditures at the full-employment GDP exceed those just necessary to achieve the full-employment level of GDP. This also is referred to as a positive GDP gap.