In the long run,a recessionary gap means that:

Question

Quizplus · Accepted Answer

A recessionary gap occurs when aggregate demand is below the potential level of output, resulting in an excess supply of goods and services. In this scenario, businesses reduce their production, leading to higher levels of unemployment. Because there are more job seekers than job openings, workers become willing to accept lower wages, leading to a decrease in nominal wages. This process continues until the real wage rate decreases and firms begin to increase production, moving real output towards its potential level. Therefore, option C is the correct answer.

In the Long Run,a Recessionary Gap Means That