In 2009, actual output in the United States was 4.6 percent below the potential output. This implies that _____
A) unemployment in the United States was below its natural rate.
B) the poverty level in the United States was below average.
C) there was a recessionary gap in the economy.
D) there was an expansionary gap in the economy.
E) there was an excess demand in the economy.

Question

Quizplus · Accepted Answer

The fact that actual output was below potential output indicates that the economy was not producing as much as it could. This creates a recessionary gap, which is the difference between actual and potential output. Therefore, the correct choice is C. A, B, D, and E are incorrect as they do not follow from the given information.

In 2009, Actual Output in the United States Was 4