For policymakers the problem with a recessionary gap is ______ and the problem with an expansionary gap is _____.

Question

Quizplus · Accepted Answer

A recessionary gap occurs when actual output is below potential output and there is unemployment and unused resources. The problem with this gap is that there are wasted resources, which means the economy is not producing as much as it could. On the other hand, an expansionary gap occurs when actual output is above potential output and there are shortages of goods and services, which can lead to inflation. Therefore, the problem with an expansionary gap is a tendency for inflation to develop.

For Policymakers the Problem with a Recessionary Gap Is ______