A recessionary GDP gap is the
A)Horizontal distance between full-employment GDP and equilibrium GDP.
B)Same as an inflationary gap.
C)Difference between leakages and injections.
D)Sum of leakages and injections.

Question

Quizplus · Accepted Answer

A recessionary GDP gap is the difference between full-employment GDP (the level of output an economy can produce when all resources are used at their normal rates) and equilibrium GDP (the level of output where aggregate expenditure equals real GDP). It represents the amount by which an economy is producing below its potential output. It is different from an inflationary gap, which represents the amount by which an economy is producing above its potential output. The difference between leakages (savings, taxes, and imports) and injections (investment, government spending, and exports) is the determiner of whether an economy is in equilibrium or experiencing a GDP gap. The sum of leakages and injections is equal to the total income generated in an economy.

A Recessionary GDP Gap Is the