If the SRAS curve intersects the AD curve to the left of Natural Real GDP,the economy is
A) in a recessionary gap.
B) at Natural Real GDP.
C) in an inflationary gap.
D) at full-employment Real GDP.

Question

Quizplus · Accepted Answer

If the SRAS curve intersects the AD curve to the left of Natural Real GDP, it means that the economy is producing below its potential output, i.e., it is operating in a recessionary gap. This is because the quantity of goods and services demanded (as shown by the AD curve) is less than the economy's capacity to produce (as indicated by the Natural Real GDP). In other words, there is a shortfall in aggregate demand, which leads to unemployment and idle resources.

If the SRAS Curve Intersects the AD Curve to the Left