A deflationary gap occurs when the aggregate demand for goods and services in an economy falls short of the aggregate supply, leading to downward pressure on prices and deflationary tendencies. It represents a situation of underutilized resources, idle capacity, and economic inefficiency, resulting in reduced output, employment, and income levels. Deflationary gaps may arise due to factors such as weak consumer demand, excess production capacity, or contractionary monetary and fiscal policies. While falling prices may benefit consumers in the short term, they can lead to deflationary spirals, where expectations of further price declines prompt delayed spending and investment, exacerbating economic downturns. Effective demand management and policy interventions are necessary to close deflationary gaps and stimulate economic recovery.