In the above figure, if the relevant aggregate demand curve is AD2, what type of gap exists and how large is it?
A) inflationary gap of $500 billion
B) inflationary gap of $1 trillion
C) recessionary gap of $1 trillion
D) recessionary gap of $500 billion

Question

Quizplus · Accepted Answer

The aggregate demand curve AD2 is below the potential GDP line, indicating a recessionary gap. The gap is $500 billion, as the vertical distance between AD2 and the potential GDP line is $500 billion.

In the Above Figure, If the Relevant Aggregate Demand Curve