If leakages exceed injections at full-employment national income, there exists ?
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Answer: C. A deflationary gap
Explanation
When leakages exceed injections at full-employment national income, total spending is insufficient to buy output. This spending shortfall prevents businesses from selling all the goods produced at full employment. Unsold inventories accumulate rapidly, creating a deflationary gap that forces output and employment downward. Leakages include savings, taxes, and imports, while injections include investment, government spending, and exports. A deflationary gap measures the shortfall in aggregate spending required to sustain full-employment equilibrium. Keynesian macroeconomic theory demonstrates how spending imbalances cause temporary economic recessions.
Central banks lower interest rates during deflationary gaps to stimulate investment injections and boost spending. Governments deploy fiscal stimulus packages to offset excessive savings leakages during economic downturns. Macroeconomic stabilization policies aim to match injections and leakages to maintain stable full-employment output. Option A is incorrect because an inflationary gap occurs when injections exceed leakages at full employment. Option B is incorrect because hysteresis describes persistent unemployment even after economic shocks subside. Option D is incorrect because hyperinflation results from excessive monetary expansion rather than a spending gap.
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