What are the Limitations of Inflationary Gap?

Inflation is a dynamic phenomenon, but the analysis of inflationary gap, being static in nature, has the following limitations.

1. Time Lags:

There are time lags between the receipt of income and its expenditure and between the adjustment of wages and prices. But for these time lags, inflation during and after war periods would have been much more serious and disastrous.

Larger these lags, milder will be the effect of inflation and vice versa. As Keynes remarked in his How to Pay for the War, “It is these time-lags and other impediments that come to our rescue. Wars do not last for ever.”

2. Current Flows:

Inflationary gap deals with current flows of income, spending, consumption, investment, saving, etc. But, inflation being a dynamic phenomenon, the increase in price and the expectations of price rise do not affect the current output alone.

They also affect the output which has been previously produced and is still available in the market.