CAIE A-Level Economics 9.1.3 National Income Gaps

Practise distinguishing equilibrium from full-employment income and calculating inflationary or deflationary expenditure gaps from Keynesian-cross or injections-withdrawals…

Exam points

identify a deflationary gap when equilibrium income lies below full-employment income
identify an inflationary gap when planned spending would push demand beyond full-employment output
use the multiplier relationship to distinguish the expenditure gap from the resulting income gap

[Maximum number: 1]

What leads to an inflationary gap?

Aggregate demand is greater than the maximum potential output of the economy.

Investment increases at a greater rate than profits received by a firm.

The economy is operating below its full capacity.

Innovation results in increased productivity in the economy.

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9.1.3—National income gaps question 1