1. Difference between actual aggregate demands and aggregate demand which is required to establish the equilibrium at full employment level of income.
2. The amount by which the actual aggregate demand exceeds the level of national income corresponding to full employment.
3. Excess of aggregate demand over aggregate supply of output.

Which of the following correctly represents the deflationary gap?

1. An expansionary fiscal policy crowds out private investment.

2. The policy of investment tax credit lowers the tax liability of the firm but increases the cost of capital of the firm.

How many of the statements given above is/are correct?

1. Real balance effect
2. Rate of interest effect
3. Foreign trade effect

1. Demand for foreign goods increases
2. Tax revenue for the government increases
3. This may lead to a decrease in savings
4. Stimulates the economy by increases in real GDP