When the economy is experiencing a negative output gap:
A) some people and some capital are unemployed.
B) the economy may be in a recession.
C) there is little inflationary pressure due to low demand.
D) All of these statements are true.

Question

Quizplus · Accepted Answer

When the economy is experiencing a negative output gap, it means the actual output is lower than the potential output. This could lead to unemployment of both people and capital. This situation could also indicate a recession in the economy. Due to low demand, there is little inflationary pressure, and hence, the price level may remain low. Therefore, all the statements in the options are correct.

When the Economy Is Experiencing a Negative Output Gap