If aggregate demand increases by the amount of the recessionary GDP gap and aggregate supply is upward-sloping,

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Quizplus · Accepted Answer

Even if aggregate demand increases by the amount of the recessionary GDP gap, there may still be factors preventing the economy from reaching full employment. For example, there may be structural unemployment or supply-side constraints that prevent firms from increasing output beyond a certain level. As a result, a recessionary GDP gap may still exist despite the increase in aggregate demand.

If Aggregate Demand Increases by the Amount of the Recessionary