Define the terms recessionary gap and inflationary gap. Why do they occur?

What will be an ideal response?

A recessionary gap exists when the expenditure line cuts the 45° line at a level a GDP below the full employment level of output. This means that total spending is not large enough to employ all workers in the economy who are willing and able to work at current wage levels. An inflationary gap exists when the level of total spending is greater than the potential output of the economy. This means that all workers are fully employed and increases in production are not possible on a sustained long-run basis. The usual result of an inflationary gap is an increase in the price level, hence the name of the condition.