The figure shows planned aggregate expenditure and output for an economy. Suppose that the economy's output is Y₁. This level of GDP would be considered: A) inflationary. B) recessionary. C) above full employment. D) a natural rate of output.

Question

Quizplus · Accepted Answer

At output level Y₁, planned expenditure is below the level of output. This indicates that there is a recessionary gap in the economy, meaning that the actual output level is below the potential output level. Therefore, the best choice is B, recessionary.

The Figure Shows Planned Aggregate Expenditure and Output for an Economy