Overview
Inflationary gaps occur when the demand for goods and services surpasses their supply, leading to increased prices and lower unemployment rates. This situation can create a temporary boost in economic activity, but it may also lead to long-term issues if inflation remains unchecked. Understanding th...
Key Terms
Example: If inflation is 2%, a $100 item will cost $102 next year.
Example: If 10 out of 100 workers are unemployed, the unemployment rate is 10%.
Example: An increase in consumer spending raises aggregate demand.
Example: At equilibrium, the quantity of goods supplied equals the quantity demanded.
Example: Lower unemployment can lead to higher inflation, according to the Phillips Curve.
Example: During a booming economy, demand-pull inflation can occur.