A contractionary gap exists when aggregate demand is insufficient to sustain real output at the economy's potential output level.

Question

Quizplus · Accepted Answer

This statement accurately defines a contractionary gap. A contractionary gap, also known as a recessionary gap, occurs when there is a shortfall in aggregate demand, causing real output to fall below the economy's potential output level. This results in high unemployment and underutilization of resources.

A Contractionary Gap Exists When Aggregate Demand Is Insufficient to Sustain