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may i know what is the difference between inflationary and deflationary gap? i am not able 2 understand it properly…pls give me example so that i understand
Inflationary gap is where you, for example, need 1200 people working to meet demand. But there are only 1000 people available and they are all employed already. Competition for labour will push wages up.
Deflationary gap is where, for example, you need 800 people working to meet demand. There are 1000 people in the working population, so the excess supply will push wages down.
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