Answer :

Inflationary gap refers to a situation when the actual aggregate demand exceeds the aggregate demand required to maintain full employment level.

Two fiscal measures to correct the inflationary gap are mentioned below:


a. A reduction if the expenditure by the government.


b. Increase in the level of taxes.



In the above figure, AD is the aggregate demand. The equilibrium is attained at point T. D is the actual aggregate demand level. It exceeds AD by ET. Et is called the inflationary gap.


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