Question

Deflationary gap shows the measurement of

• A. Deficient demand
• B. Surplus demand
• C. Full employment
• D. None of these

Hint:

A deflationary gap occurs when there is insufficient demand in the economy, resulting in unused capacity and higher unemployment.

Answer 1

The Correct Option is A

Step 1: Understanding Deflationary Gap:
A deflationary gap occurs when there is insufficient demand in the economy to purchase all the goods and services produced. It represents a situation where aggregate demand is less than aggregate supply, leading to unemployment and unused capacity in the economy. Step 2: Analyzing the Options:
- Option (A): A deflationary gap represents deficient demand, where aggregate demand falls short of the economy's productive capacity.
- Option (B): Surplus demand is not related to a deflationary gap, as it refers to a situation where demand exceeds supply.
- Option (C): Full employment is the opposite of a deflationary gap, as full employment occurs when the economy is operating at its productive capacity.
- Option (D): This is incorrect, as the deflationary gap is indeed related to deficient demand. Step 3: Conclusion:
The correct answer is option (A), as the deflationary gap measures deficient demand.