When the economy produces less than its potential output, it is:
A) in a recession.
B) not in long-run equilibrium.
C) producing a quantity less than the long-run aggregate supply.
D) All of these are true.

Question

Quizplus · Accepted Answer

A recession occurs when the economy is producing less than its potential output. This also implies that the economy is not in long-run equilibrium, which occurs when the economy is producing at its potential output. Additionally, producing less than the long-run aggregate supply suggests that the economy is not capable of producing at its full potential in the long run. Therefore, all of these statements are true.

When the Economy Produces Less Than Its Potential Output, It