Exhibit 11-1
-In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS₅₀in Exhibit 11-1,what would be the size of the recessionary gap?

Question

Exhibit 11-1 -In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS₅₀in Exhibit 11-1,what would be the size of the recessionary gap?

Quizplus · Accepted Answer

To find the size of the recessionary gap, we need to compare the equilibrium level of output with the potential level of output at full employment. In Exhibit 11-1, we can see that the intersection of AD and SRAS₅₀ occurs at a level of output of $900 billion. However, at full employment, the potential level of output is $1,100 billion, as shown by the LRAS curve. Therefore, the size of the recessionary gap is $200 billion ($1,100 billion - $900 billion). So, the correct answer is D) $200.

Exhibit 11-1 -In an Economy Characterized by the Aggregate Demand Curve AD