Define Inflationary Gap. State, how the Central Bank of an economy can control the situation of inflationary gap, using any monetary policy measure.

Inflationary gap refers to the situation when Aggregate Demand is greater than Aggregate Supply, corresponding to full employment level of output.To correct the situation of inflationary gap, the Central Bank may raise Legal Reserve Ratio, which may lead to lesser availability of funds with commercial banks for lending. Consequently, this may reduce the credit creation capacity of the commercial banks leading to reduction in Aggregate Demand and helps to manage inflationary gap.