A recessionary gap means that short- run macroeconomic equilibrium GDP
A) equals full- employment GDP.
B) is more than full- employment GDP.
C) is less than full- employment GDP.
D) may be less than, more than, or the same as full- employment GDP depending on the level of potential GDP.

Question

Quizplus · Accepted Answer

A recessionary gap occurs when the short-run equilibrium level of GDP is below the full-employment level of GDP, indicating that there is a cyclical unemployment and a decrease in potential output. Therefore, option C is the correct answer as it represents the scenario where short-run equilibrium GDP is less than full-employment GDP.

A Recessionary Gap Means That Short- Run Macroeconomic Equilibrium GDP