Question

The fiscal policy target for achieving full employment when an inflationary gap exists is known as the?

Answer 1

The fiscal policy target for achieving full employment when an inflationary gap exists is known as the fiscal policy target or inflationary gap.

What is an inflationary gap?

An inflationary gap is a macroeconomic concept that gauges the difference between the current level of real GDP and the GDP that would exist if an economy was fully employed. The current real GDP must be greater than the potential GDP for the gap to be termed inflationary. Reduced government expenditure, tax rises, bond and securities offerings, interest rate increases, and transfer payment reductions are all policies that can help close the inflationary gap. An inflationary gap occurs when demand for products and services exceeds supply due to factors such as greater overall employment, increased trade activity, or increased government spending.

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