A recessionary gap develops _____
A) when actual output exceeds potential output.
B) when resource prices are "sticky" upward.
C) only when the economy is in a recession.
D) only when GDP grows by more than 4 percent.
E) only when unemployment exceeds its natural rate.

Question

Quizplus · Accepted Answer

A recessionary gap occurs when actual output is less than potential output, which is often associated with unemployment exceeding its natural rate. This situation reflects underutilization of resources in the economy, leading to higher unemployment rates than what is considered natural or normal.

A Recessionary Gap Develops _____