Table 7-1
Table 7-1 shows the aggregate demand and short-run aggregate supply curves for an economy. The potential level of output is $7.6 trillion.
-Refer to Table 7-1. What kind of gap, if any, exists and what is the size of the gap?
A) No gap exists because the economy is in equilibrium.
B) There is a recessionary gap of $0.8 trillion.
C) There is a recessionary gap of $0.2 trillion.
D) There is an inflationary gap of $1 trillion.

Question

Table 7-1
  Table 7-1 shows the aggregate demand and short-run aggregate supply curves for an economy. The potential level of output is $7.6 trillion.
-Refer to Table 7-1. What kind of gap, if any, exists and what is the size of the gap?
A) No gap exists because the economy is in equilibrium. 
B) There is a recessionary gap of $0.8 trillion. 
C) There is a recessionary gap of $0.2 trillion. 
D) There is an inflationary gap of $1 trillion.

Quizplus · Accepted Answer

The intersection of the aggregate demand and short-run aggregate supply curves occurs at a level of output of $6.8 trillion, which is below the potential level of output of $7.6 trillion. Therefore, there is a recessionary gap of $0.8 trillion.

Table 7-1 Table 7-1 Shows the Aggregate Demand and Short-Run