The recessionary gap is the spending reduction necessary to bring an overheated economy back to full employment.

Question

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The recessionary gap refers to the difference between a country's actual level of GDP and its potential GDP when the economy is not at full employment. It occurs during a recession when there is a decrease in aggregate demand, leading to lower output and unemployment. The solution to the recessionary gap is an increase in government spending or a decrease in taxes to boost aggregate demand and bring the economy back to full employment.

The Recessionary Gap Is the Spending Reduction Necessary to Bring