Meaning of Inflation:
Inflation may be defined as a persistent and appreciable rise in the general price level. Inflation is statistically measured in terms of percentage increase in the price index over a period of time usually a year. Inflation is not the increase in an individual prices but is the increase in general price level.
Measure of Inflation Rate : (with the help of GDP deflator):
Rate of Inflation is measured by dividing change in GDP deflator by previous year's GDP deflator and multiplying by 100%.
Meaning of Inflationary Gap:
Inflationary gap is the situation in which the aggregate demand exceeds the productive potential of the economy. Due the inability of the economy to fulfill this increased demand, the average price level in the economy increases, resulting in inflation. The government can use contractionary fiscal policy to control inflation and narrow down the gap.
0 Comments