The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion.
TABLE 24-1
-Refer to Table 24-1.Which of the following statements best describes the situation facing Economy B?
A)There is a recessionary gap of $40 billion and wages are falling slowly.
B)There is an inflationary gap of $40 billion and wages are rising.
C)There is a recessionary gap of $20 billion and wages are falling slowly.
D)There is no output gap and wages are stable.
E)There is an output gap of $20 billion and wages are rapidly adjusting.

Question

The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion.
  TABLE 24-1
-Refer to Table 24-1.Which of the following statements best describes the situation facing Economy B?
A)There is a recessionary gap of $40 billion and wages are falling slowly. 
B)There is an inflationary gap of $40 billion and wages are rising. 
C)There is a recessionary gap of $20 billion and wages are falling slowly. 
D)There is no output gap and wages are stable. 
E)There is an output gap of $20 billion and wages are rapidly adjusting.

Quizplus · Accepted Answer

Potential output for each economy is $340 billion, but actual GDP of Economy B is only $320 billion, indicating a recessionary gap of $20 billion. The fact that wages are falling slowly suggests that the economy is experiencing deflationary pressures rather than inflationary pressures. Therefore, Choice C is the best option.

The Table Below Shows Data for Five Economies of Similar