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Excess & Deficient Demand · Question 12 of 53

The graph shows AD₁ above AD at the full-employment income.

Question 12

MediumOriginal question

The graph shows AD₁ above AD at the full-employment income. The inflationary gap is

A dashed 45° line, an AD line that meets it at F at the full-employment income of ₹400 crore, and a higher line AD₁. At ₹400 crore of income, AD₁ is ₹460 crore (point G), ₹60 crore above F.
Options for question 12

Show the answer and explanation
CorrectNot quiteAnswer A

Correct answer: A

Explanation

  1. At the full-employment income of 400, AD₁ = 460 (point G) while full-employment output is 400 (point F).

  2. Gap = 460 − 400 = ₹60 crore.

Worth noting

₹120 crore would be the multiplied effect on money income; the gap itself is the vertical distance at full employment.

Concept
Reading the inflationary gap
Typical time
70 s
Your time
—
The rule this testsExcess demand and the inflationary gap
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