If the economy is experiencing a recessionary GDP gap from a demand shock,then aggregate
A)Supply must be increased so that producers can sell more goods.
B)Supply must be decreased so that producers will have fewer goods to sell.
C)Demand must be increased so that producers can sell more goods.

Question

Quizplus · Accepted Answer

A demand shock implies that demand has decreased, causing a recessionary GDP gap. Therefore, the solution would be to increase demand so that producers can sell more goods and ultimately increase production to close the gap. Supply should not be decreased as this would exacerbate the gap and potentially worsen the recession. Increasing supply may not be effective if there is already a lack of demand for the current level of production.

If the Economy Is Experiencing a Recessionary GDP Gap from a Demand