A recessionary output gap is characterized by
A)rising prices.
B)constant prices.
C)real output that varies one-for-one with aggregate demand.
D)real GDP exceeding potential output.
E)real GDP falling below potential output.

Question

Quizplus · Accepted Answer

A recessionary output gap occurs when real GDP falls below potential output. This indicates that the economy is not producing at its maximum capacity and there is a shortfall in demand and employment. It is characterized by high unemployment rates and low inflation or even deflation.

A Recessionary Output Gap Is Characterized by