How does an inflationary gap typically affect unemployment and inflation rates?

An inflationary gap occurs when the demand for goods and services in an economy exceeds its productive capacity, leading to higher prices. When this happens, businesses often hire more workers to meet the increased demand, which can lower unemployment rates because more people are finding jobs. However, as more money is spent and demand continues to rise, prices also increase, causing inflation to go up. For example, if a restaurant is busy and needs more cooks, it might raise wages to attract staff, but this can also lead the restaurant to increase menu prices to cover those costs. Therefore, in an inflationary gap, we usually see lower unemployment alongside rising inflation.