A recessionary output gap is defined to be when:
A) equilibrium aggregate expenditure is below full employment GDP.
B) equilibrium aggregate expenditure is equal to full employment GDP.
C) equilibrium aggregate expenditure is above full employment GDP.
D) government spending is insufficient causing a gap in GDP.

Question

Quizplus · Accepted Answer

A recessionary output gap is when equilibrium aggregate expenditure (AE) is below full employment GDP (Yfe), meaning that the economy is producing less than its potential capacity. This results in high unemployment, low income, and low levels of consumption and investment.

A Recessionary Output Gap Is Defined to Be When