Within the framework of the Keynesian Cross model, if an economy is operating at a real GDP less than full-employment real GDP:
A) a recessionary gap exists
B) an inflationary gap exists
C) aggregate expenditures will rise
D) the general level of prices will rise

Question

Quizplus · Accepted Answer

If an economy is operating at a real GDP less than full-employment real GDP, it means that there is a gap between the actual output and potential output of the economy. This is known as a recessionary gap, where the economy is producing below its full capacity and therefore has unemployment and underutilized resources. To close this gap and reach full employment, aggregate expenditures need to increase. An inflationary gap, on the other hand, occurs when actual output exceeds potential output, and there is excess demand in the economy, leading to rising prices.

Within the Framework of the Keynesian Cross Model, If an Economy