A recessionary gap implies that
A)Aggregate demand is less than aggregate supply at the full-employment price level.
B)The unemployment rate is falling.
C)Aggregate demand exceeds aggregate supply at the full-employment price level.
D)Inventories are being depleted faster than producers desire.

Question

Quizplus · Accepted Answer

A recessionary gap occurs when the economy is producing below its potential output level, resulting in high unemployment and excess capacity. This implies that aggregate demand (total spending in the economy) is lower than aggregate supply (total production in the economy) at the full-employment price level, leading to a gap between actual and potential output.

A Recessionary Gap Implies That