The amount by which the equilibrium level of real GDP exceeds the full employment level of GDP is called
recessionary gap
inflationary gap
income multiplier
automatic stabilizer
Answer is Right!
Answer is Wrong!
This question was previously asked in
UPSC CAPF – 2021
– Equilibrium level of real GDP is the level of output where aggregate demand equals aggregate supply.
– A recessionary gap occurs when the equilibrium level of real GDP is *below* the full employment level. This indicates insufficient aggregate demand, leading to unemployment.
– An inflationary gap occurs when the equilibrium level of real GDP is *above* the full employment level. This indicates that aggregate demand is too high relative to the economy’s potential to produce, leading to upward pressure on prices (inflation).
– The income multiplier describes the magnified effect of a change in autonomous spending on equilibrium output.
– An automatic stabilizer is a fiscal policy that automatically adjusts to stabilize the economy without explicit government intervention.
– The question describes a situation where equilibrium GDP exceeds full employment GDP, which corresponds to an inflationary gap.