Inflationary Gap Vs Recessionary Gap

In AP Macroeconomics, the economy isn't always in perfect long-run equilibrium. When it isn't, there is a gap betwixt the equilibrium Gdp in the long run and the short(er)-term equilibrium Gdp. There are two types of gaps in AP Macro: recessionary and inflationary gaps.

Recessionary Gaps

In a recessionary gap, there is a lower brusk-run equilibrium value than the long-run equilibrium value and can be visualized past a leftward shift in aggregate need.

Equally y'all can encounter, in that location is a lower value for the brusque-run equilibrium compared to the long run, implying a recessionary gap. Recessionary gaps are characterized by high unemployment and depression prices. This gap tin can be airtight either in the long run by a shift in short-run aggregate supply due to wage changes, or by expansionary fiscal/monetary policy.

Long-Run Adjustment

For a recessionary gap, in the long run, SRAS shifts to correct the gap. The way this happens is: low prices lead to lower nominal wages, which leads to a rightward shift in SRAS, closing the gap.

Inflationary Gaps

In a recessionary gap, at that place is a higher short-run equilibrium value than the long-run equilibrium value and can be visualized past a rightward shift in aggregate demand.

As you can see, there is a higher value for the short-run equilibrium (Ye) compared to the long run (Yf), implying an inflationary gap. Inflationary gaps are characterized past low unemployment and high prices. This gap tin can be closed either in the long run by a shift in curt-run aggregate supply due to wage changes, or by contractionary fiscal/monetary policy.

Long-Run Aligning

For an inflationary gap, in the long run, SRAS shifts to right the gap. The way this happens is: higher prices lead to higher nominal wages, which leads to a leftward shift in SRAS, closing the gap.