A recessionary gap results when
A) aggregate demand is below the level consistent with full employment.
B) aggregate demand is above the level consistent with full employment.
C) aggregate supply and aggregate demand are not in short-run equilibrium.
D) aggregate supply decreases.

Question

Quizplus · Accepted Answer

A recessionary gap occurs when aggregate demand falls below the level needed to maintain full employment. This often leads to high unemployment rates, as businesses do not need as many workers to produce less output. It can also result in a decrease in prices as businesses try to sell their excess supply, which can lead to deflation.

A Recessionary Gap Results When