If leakages are greater than injections,equilibrium output will be
A)Less than full-employment output,and a recessionary gap will occur.
B)Less than full-employment output,and an inflationary gap will occur.
C)More than full-employment output,and a recessionary gap will occur.
D)More than full-employment output,and an inflationary gap will occur.

Question

Quizplus · Accepted Answer

When leakages are greater than injections, it means that saving, taxes, and imports are higher than investment, government spending, and exports. This results in a decrease in aggregate demand and a decrease in equilibrium output. As a result, there is a recessionary gap, which is the difference between actual output and potential output, also known as the output gap. This means that the economy will be producing less than full-employment output, leading to unemployment and a lower level of economic activity.

If Leakages Are Greater Than Injections,equilibrium Output Will Be