Assume there is a decrease in government purchases and exports.Currently there is a recessionary gap,which implies that
A)Inventories are accumulating.
B)Inventories are being depleted.
C)Desired spending is greater than output.
D)Investment is greater than saving.

Question

Quizplus · Accepted Answer

When there is a recessionary gap, it means that actual output is less than potential output, leading to an accumulation of inventories as businesses produce more than is being purchased due to decreased government purchases and exports.

Assume There Is a Decrease in Government Purchases and Exports