Keynes asserts that the inflationary gap is brought on by .a.a lack of demandb.a surplus of supplyc.a surplus of demandd.a lack of supply
Question
Keynes asserts that the inflationary gap is brought on by
- a. a lack of demand
- b. a surplus of supply
- c. a surplus of demand
- d. a lack of supply
Solution
Keynes asserts that the inflationary gap is brought on by c. a surplus of demand.
Here's a step-by-step explanation:
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The inflationary gap refers to the difference between the actual gross domestic product (GDP) and the GDP at full employment when the actual GDP is higher. In other words, it's the amount by which the actual GDP exceeds the potential GDP.
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According to Keynesian economics, this situation arises when there is excessive demand in the economy.
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When demand for goods and services exceeds their supply, prices tend to rise. This is because businesses can charge more for their products when demand is high.
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This increase in price levels across the economy leads to inflation, hence the term "inflationary gap".
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Therefore, Keynes asserts that the inflationary gap is brought on by a surplus of demand.
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