-In the above figure, if the relevant aggregate demand curve is AD₂, what type of gap exists and how large is it?
A)inflationary gap of $500 billion
B)inflationary gap of $1 trillion
C)recessionary gap of $1 trillion
D)recessionary gap of $500 billion

Question

-In the above figure, if the relevant aggregate demand curve is AD₂, what type of gap exists and how large is it?
A)inflationary gap of $500 billion 
B)inflationary gap of $1 trillion 
C)recessionary gap of $1 trillion 
D)recessionary gap of $500 billion

Quizplus · Accepted Answer

The aggregate demand curve AD2 is below the potential GDP line, indicating a recessionary gap. The gap is the vertical distance between AD2 and the potential GDP line, which is $500 billion.

-In the Above Figure, If the Relevant Aggregate Demand Curve