Question #59606

AS/AD Model.
AD: P = 48 - 2Y.
AS: P = 8.
PO: Y = 16.
What is the Inflationary Gap

Expert's answer

Find macroeconomic equilibrium, when total demand=total supply

AD=AS

P=48-2Y=8

Y (actual GDP) =20

When actual GDP is above the potential GDP the economy has positive output gap, also called as inflationary gap.

Inflationary Gap = Actual GDP- Potential GDP=20-16=4

AD=AS

P=48-2Y=8

Y (actual GDP) =20

When actual GDP is above the potential GDP the economy has positive output gap, also called as inflationary gap.

Inflationary Gap = Actual GDP- Potential GDP=20-16=4

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