Exhibit 12-3
-In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS₅₀in Exhibit 12-3, what would be the size of the recessionary gap?

Question

Exhibit 12-3 Exhibit 12-3 -In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS<sub>50 </sub>in Exhibit 12-3, what would be the size of the recessionary gap? A) $500 B) $400 C) $300 D) $200 E) $100

Exhibit 12-3 -In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS<sub>50 </sub>in Exhibit 12-3, what would be the size of the recessionary gap? A) $500 B) $400 C) $300 D) $200 E) $100

-In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS₅₀in Exhibit 12-3, what would be the size of the recessionary gap?

Quizplus · Accepted Answer

The recessionary gap is defined as the difference between the equilibrium level of output and the potential level of output. In this case, the potential level of output is given by the intersection of the aggregate demand curve (AD) and the long-run aggregate supply curve (LRAS) at point E. However, in the short-run, the economy is producing at point A where SRAS1 intersects AD. Therefore, the size of the recessionary gap is the vertical distance between point A and point E, which is equal to $200 billion. Therefore, the correct answer is (D) $200.

Exhibit 12-3 -In an Economy Characterized by the Aggregate Demand Curve AD