When there is a recessionary gap:
A)Real output exceeds the natural level of real output.
B)Real output equals the natural level of real output.
C)Real output is less than the natural level of real output.
D)Any of the above is possible.

Question

When there is a recessionary gap:
A)​Real output exceeds the natural level of real output.
B)​Real output equals the natural level of real output.
C)​Real output is less than the natural level of real output.
D)​Any of the above is possible.

Quizplus · Accepted Answer

A recessionary gap means that actual output is lower than potential output, which is also known as the natural level of output. Therefore, choice C is correct. Choices A and B are incorrect as they describe situations where actual output equals or exceeds potential output, which is not a recessionary gap. Choice D is incorrect as only one option is possible in this scenario.

When There Is a Recessionary Gap