A recessionary gap exists when AD and SRAS
A) fail to intersect.
B) intersect to the right of Natural Real GDP.
C) intersect to the left of Natural Real GDP.
D) both have a positive slope.

Question

Quizplus · Accepted Answer

A recessionary gap occurs when there is an intersection of AD and SRAS to the left of Natural Real GDP, indicating that the economy is producing less than its potential output. Option A is not correct because AD and SRAS can intersect, but it may not be at a point that represents full employment. Option B is not correct because if AD and SRAS intersect to the right of Natural Real GDP, it indicates that the economy is producing output beyond its potential, which leads to inflationary pressures. Option D is not relevant as it does not provide information about the position of the intersection of AD and SRAS.

A Recessionary Gap Exists When AD and SRAS