What is the consequences of the deflationary gap?

A deflationary gap occurs when the actual output of an economy is below its potential output, leading to reduced consumer spending and investment. This can result in rising unemployment, as businesses cut back on production and hiring due to lower demand. Additionally, persistent deflation can increase the real burden of debt, discouraging borrowing and spending, further exacerbating economic stagnation. Overall, the deflationary gap can lead to a prolonged period of economic hardship and reduced growth.