A recessionary gap:
A) is of little consequence in a capitalist economy.
B) represents actual physical output lost.
C) implies an equilibrium level of output less than the full-employment level.
D) will automatically close, according to the Keynesian model.

Question

Quizplus · Accepted Answer

A recessionary gap represents a situation where the equilibrium level of output is less than the full-employment level. It indicates that there's an actual physical output lost, which leads to unemployment and a decrease in economic activity. The Keynesian model does not necessarily imply that a recessionary gap will automatically close, and it may require government intervention to stimulate demand and restore economic growth.

A Recessionary Gap