Question

What does it mean when we say that the inflation gap is negative?

Short answer

The inflation gap is negative when the present rate of inflation is a smaller amount than the target rate of inflation in an economy.

Step-by-step solution

Concept Introduction 

Inflation is the continuous increase in the prices associated with goods and services within an economy during a specific period of your time.

Explanation of Solution 

The inflation gap is negative when the present rate of inflation is a smaller amount than the target rate of inflation in an economy. Inflation is claimed to be negative when the full increase within the prices of commodities are but the expected rise.