The recessionary GDP gap is
A)Equal to the spending multiplier.
B)The amount by which equilibrium GDP falls short of full-employment GDP.
C)Small unless the unemployment rate is very low.

Question

Quizplus · Accepted Answer

The recessionary GDP gap is the amount by which equilibrium GDP falls short of full-employment GDP. It represents the difference between what an economy could produce at full employment and what it is currently producing during a recession. It is not equal to the spending multiplier and its magnitude is not necessarily related to the unemployment rate.

The Recessionary GDP Gap Is