If the output gap equals-$50 million,then

Question

Quizplus · Accepted Answer

An output gap is the difference between actual GDP and potential GDP. A negative output gap (as in this case where it equals -$50 million) indicates that actual GDP is below potential GDP, which suggests an economic recession. Thus, there is a recessionary gap. Option A is false because cyclical unemployment measures the deviation of actual unemployment from its natural rate due to business cycle fluctuations, and it is not related to the output gap. Options C and E are also incorrect because they suggest an expansionary gap, which is the opposite of a negative output gap. Option D is wrong because if there is a recessionary gap, then there must be cyclical unemployment.

If the Output Gap Equals-$50 Million,then