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Starting with the graphs below identify which is the inflationary gap and which is the recessionary gap. Then show and explai
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The second graph is said to be the Inflationary gap as the aggregate demand exceeds the demand which is actually required to establish the output (or) the place or point where the aggregate demand is greater than aggregate supply (AD>AS) (or) the actual gross domestic product exceeds potential full-employment GDP.

The first graph is Recessionary gap as the difference between the Potential GDP and Real GDP at a full employment level. In other words the real GDP is lower than the original GDP.

The recessionary gap can be closed with lowering the wages and increase the supply curve which is in the short run with changes in wages and other resource pricing, in generally with in government intervention we can solve this with changing the policies of fiscal policy and increasing the government expenditure would close the gap and bring the equilibrium point of potential GDP under full employment.

the inflationary gap can be closed higher wages , in general the inflationary gap can be closed by the government by reducing its expenses and increase the taxes in he general public.

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