Deflationary Gap

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Deflationary gap is the opposite of inflationary gap. If the volume of goods and services is larger than the aggregate demand for them, a deflationary gap will arise. Deflationary gap arises when the C + I of- G line is pushed down to C’ + I’ + G’. The decline in demand may be because of reduction in government expenditure or decline in private investment or fall in private consumption demand.

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