If actual GDP is less than potential output, then the economy is:
A) in an inflationary gap.
B) in a recessionary gap.
C) in a long-run equilibrium.
D) at full employment.

Question

Quizplus · Accepted Answer

A situation where actual GDP is less than potential output means that the economy is operating below its full capacity. This indicates a recessionary gap because there is an overall decrease in production and employment, leading to lower income levels and worsening economic conditions.

If Actual GDP Is Less Than Potential Output, Then the Economy