Inflationary Gap

Definition

An inflationary gap occurs when the actual level of output in an economy exceeds its potential level, leading to rising prices and increased inflation.

Related terms

Aggregate Supply: The total amount of goods and services that producers are willing and able to supply at different price levels.

Monetary Policy: Actions taken by central banks to control money supply, interest rates, and credit availability in order to influence economic conditions.

Cost-Push Inflation: A type of inflation caused by increases in production costs such as wages or raw materials.