Is our economy currently experiencing a recessionary gap or an inflationary gap?
The gap alluded to in either instance is one of national output in a macroeconomic model. A recessionary gap occurs when production exceeds consumption, while an inflationary gap describes when consumption exceeds production. In the former, inventories accumulate, while in the latter, inventories diminish or disappear. Since not every sale happens at once, you’ll only see completely full or completely barren shelves in the most extreme situations (regions that are isolated and do not receive a regular flow of products, for instance). It is more useful to look at days supply of inventories. Note that many inventories are currently being built up for the holiday retail season, which may make it appear as though there is a recessionary gap. Note also that retailers do not intend to sell every item at once, but hopfefully by Christmas. This means that retail is not a good place to look. Let’s try autos instead. In the auto industry, there is currently a fairly large supply of autos sitting
