Glossary · Macro · Aggregate demand and supply

Inflationary gap

When real GDP sits above potential output, so the short-run equilibrium lies to the right of LRAS. Unemployment is below its natural rate and the economy is overheating. Left alone, rising wages shift SRAS left and close it at a higher price level.

Also called: positive output gap, expansionary gap

Watch it happen step by stepTaught in: Macro Equilibrium

Related terms

Output gapRecessionary gapSelf-correctionDemand-pull inflation

More from aggregate demand and supply

Aggregate demand (AD)Business cycleLong-run aggregate supply (LRAS)Macroeconomic equilibriumPotential output

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