[This is part of the series: The Complete Guide To Economics 101.]
What is an inflationary gap?
An Inflationary Gap is the amount which “Equilibrium Output” is above “Potential Output.”
This is where Potential Output is simply the intersection of Aggregate Supply and Aggregate Demand – and Equilibrium Output is output that falls above Potential Output.
An inflationary gap is caused by an upward shift in the Aggregate Supply curve.