A recessionary gap occurs when
A) aggregate demand falls, but other things remain constant.
B) short-run aggregate supply falls, but other things remain constant.
C) the short-run equilibrium level of real GDP is greater than the level consistent with the long-run aggregate supply curve.
D) the short-run equilibrium level of real GDP is less than the level consistent with the long-run aggregate supply curve.

Question

Quizplus · Accepted Answer

A recessionary gap occurs when the short-run equilibrium level of real GDP is less than the level consistent with the long-run aggregate supply curve. This means that the economy is producing less than its potential output and is therefore in a recession.

A Recessionary Gap Occurs When