What's an Expansionary Gap?
An Expansionary Gap Is When Actual Output Exceeds Potential Output. .. . in Other Words, When Actual Gdp Is Higher Than Potential Gdp, Prices Go Up. This Is...
An expansionary gap is when actual output exceeds potential output. ... In other words, when actual GDP is higher than potential GDP, prices go up. This is why an expansionary gap is also referred to by economists as an 'inflationary gap.
What closes an expansionary gap?
Expansionary fiscal policy can close recessionary gaps (using either decreased taxes or increased spending) and contractionary fiscal policy can close inflationary gaps (using either increased taxes or decreased spending).
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How do you calculate expansionary gap?
Calculating an expansionary gap is very simple and requires you to simply subtract the two numbers - subtract the economy's actual output from its long-run potential. In this case, it's $15 trillion minus $14 trillion, which equals $1 trillion. It's that easy.
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