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What Is Inflationary Gap And Is Inflation Always Bad?

What Is Inflationary Gap?

Inflationary gap is the amount by which the real Gross domestic product, or real GDP, exceeds potential GDP. The real GDP is also known as GDP adjusted for inflation, because it measures the aggregate output in a country's income accounts in a given year, expressed in case year prices. On the other hand, the potential GDP is the quantity of real GDP when a country's economy is at full employment.

SEE ALSO: What Is Supply Of Money, Ordinary Money And High Power Money

Inflationary Gap effects in economics

Is Inflation Always Bad?

In case of inflation, general price level has increase where home currency loose its value. In the period of inflation fixed income peoples hurt more, they can't maintain the standard of living due to decrease the purchasing power of money. On the other hand the rich became riches. So inflation increase the distance between poor and rich in the society. But inflation is not always bad, an acceptable rate of inflation is beneficial for economy. As like 2% to 4% is the acceptable level of inflation. That kind of inflation creates extra profit of businessman so they increase the production level for intend to more profit. Acceptable inflation helps to increase national income and production. So it is said that inflation is not always bad, acceptable inflation is beneficial for economy.
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