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-(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. Which equation measures a recessionary gap?

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-(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. Which equation measures a recessionary gap?

Quizplus · Accepted Answer

A recessionary gap occurs when the equilibrium real output (YS) is less than the potential real output (Yp). In the figure, Y₂ represents the equilibrium output when the economy is in a recessionary gap, while Y₁ represents the potential output. Thus, the equation Y₂ - Y₁ measures the size of the recessionary gap.

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