If there is currently a contractionary gap,a fall in aggregate demand would make the contractionary gap larger.

Question

Quizplus · Accepted Answer

A contractionary gap occurs when the economy is operating below its potential level of output. This means that there are idle resources, such as unemployed workers and unsold goods. If aggregate demand falls, the level of output and employment would also fall, making the contractionary gap even larger. This is because there would be further idle resources in the economy, which would not be utilized until there is an increase in aggregate demand.

If There Is Currently a Contractionary Gap,a Fall in Aggregate