Gaps and Gap Analysis

Inflationary Gap

By March 17, 2016 December 1st, 2018 No Comments

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Why Jobs Matter

You can’t be involved in any aspect of national financial health, such as the stock market, the banks, small business or real estate, without immediately becoming involved in all of them at once. All these systems rely on each other for stability and growth, and we must realize that when one is struggling, the others will shortly start exhibiting similar symptoms of struggle as well. Using the inflationary gap, economists are able to evaluate current conditions and use them to predict the effect on jobs, prices, and other things.

Macroeconomists will use the formula Y = C + G + I +NX to determine the inflationary gap, where Y equals the real GDP, C equals consumption expenditure, I equals investment, G equals government expenditure and NX equals net exports.

Simply put, the inflationary gap is an evaluation tool used by economists to describe the current distance between the real gross domestic product and full employment real GDP. When the gross domestic product is operating at expected, or better than expected, levels, it will often increase the nation’s consumption, which will ultimately increase prices over the long term. Lacking employment can interrupt this equilibrium.