If potential output equals $8 billion and actual output equals $7 billion, then this economy has a(n):

Question

Quizplus · Accepted Answer

The given scenario shows that actual output is less than potential output, which means there is a shortfall in the economy's production. This shortfall is called a recessionary gap. Therefore, option D is the correct answer. Option A (budget deficit) and option B (trade deficit) are not relevant in this context. Option C (expansionary gap) would be the case if the actual output is higher than the potential output.

If Potential Output Equals $8 Billion and Actual Output Equals