The amount by which the equilibrium level of real GDP exceeds the full employment level of GDP is called
[amp_mcq option1=”recessionary gap” option2=”inflationary gap” option3=”income multiplier” option4=”automatic stabilizer” correct=”option2″]
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.