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Graph the difference between the inflationary & recessionary gaps.

Graph the difference between the inflationary & recessionary gaps.

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The inflationary gap is formed when the prices of goods and services are high due to increase in money supply, and recessionary gap is formed when the goods and services price drops due to less money supply and it also causes unemployment in the economy. Q' is new quantity produced and P'is new price. At inflationary gap the price and quantity produced and demanded increases and opposite happens at recessionary gap. AD@e is aggregate demand at equilibrium and EAD is expected aggregate demand.

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