If the economy is currently operating below its institutional production possibilities frontier (institutional PPF),it is
A) in long-run equilibrium.
B) in a recessionary gap.
C) in an inflationary gap.
D) definitely not self-regulating.
E) b and d

Question

Quizplus · Accepted Answer

If the economy is operating below its institutional PPF, it means that it is producing below its potential. This implies that there are unemployed resources such as labor and capital. In such a situation, there is a recessionary gap, which is the difference between the actual level of output and the potential level of output. Therefore, the correct answer is B. Neither choice A, C, nor D is correct. E is incorrect because D is not a correct choice.

If the Economy Is Currently Operating Below Its Institutional Production