Refer to the above diagram.If the full-employment level of GDP is B and aggregate expenditures are at AE₃, the: A)inflationary GDP gap is BC. B)recessionary GDP gap is BC. C)recessionary GDP gap is AB. D)inflationary expenditure gap is ed.

Question

Quizplus · Accepted Answer

At full-employment level of GDP B, the aggregate expenditures should be at AES2. But in the given diagram, it is shown that aggregate expenditures are at AES1. This means there is a recessionary GDP gap equal to AB. Therefore, the correct answer is C.

Refer to the Above Diagram