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The calculation for the output gap is (Y–Y*)/Y* where Y is actual output and Y* is potential output. If this calculation yields a positive number it is called an inflationary gap and indicates the growth of aggregate demand is outpacing the growth of aggregate supply—possibly creating inflation; if the calculation yields a negative number it is called a recessionary gap—possibly ...
A deflationary spiral is a situation where decreases in the price level lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in the price level. [ 39 ] [ 40 ] Since reductions in general price level are called deflation, a deflationary spiral occurs when reductions in price lead to a vicious ...
Changes in inflation may also impact the formation of inflation expectations, creating a self-fulfilling inflationary or deflationary spiral. [ 5 ] The monetarist quantity theory of money holds that changes in the price level are directly caused by changes in the money supply . [ 16 ]
The difference between potential output and actual output is referred to as output gap or GDP gap; it may closely track lags in industrial capacity utilization. [ 4 ] Potential output has also been studied in relation Okun's law as to percentage changes in output associated with changes in the output gap and over time [ 5 ] and in decomposition ...
Similarly, deflation could boost same-store sales growth and give the retailer to reinvest in the quality and quantity of products, which was hard to do during the inflationary environment of the ...
Mostly, the medieval inflation episodes were modest, and there was a tendency that inflationary periods were followed by deflationary periods. [ 26 ] From the second half of the 15th century to the first half of the 17th, Western Europe experienced a major inflationary cycle referred to as the " price revolution ", [ 40 ] [ 41 ] with prices on ...
Inflationary bias is the outcome of discretionary monetary policy that leads to a higher than optimal level of inflation. Depending on the way expectations are formed in the private sector of the economy, there may or may not be a transitory income increase. The term may also refer to the practice of a public debt-ridden nation enacting ...
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