To describe: The equilibrium levels of real output and price level.
Answer to Problem 1TY
There exist an inflationary gap
Explanation of Solution
A recessionary gap emerges when aggregate demand is lower than the aggregate stockpile and short run equilibrium in the economy is underneath the full empowerment level.
Graphical representation
Below figure shows whether the economy has inflationary or recessionary gap.
In the above figure, X axis speaks to the various degrees of cost. Here the upward slanting bend is an inventory bend and descending inclining bend is a demand bend.
Figure 2 obviously shows that there exists an inflationary gap when the full work level of yield is $2,800. This is on the grounds that the equilibrium level of yield $3,000 is more prominent than the full work level of yield $2,800.
Introduction: A recessionary gap is a
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