A recessionary gap occurs when
A) nominal GDP is less than potential GDP.
B) nominal GDP is greater than potential GDP.
C) real GDP is less than potential GDP.
D) high rates of inflation occur.

Question

Quizplus · Accepted Answer

A recessionary gap occurs when real GDP is less than potential GDP, meaning that the economy is producing less than it is capable of producing. Nominal GDP and inflation rates are not necessarily indicative of a recessionary gap.

A Recessionary Gap Occurs When