The economy pictured in the given figure has a(n)________ gap with a short-run equilibrium combination of inflation and output indicated by point ________.
A)recessionary; A
B)recessionary; B
C)recessionary; C
D)expansionary; A

Question

The economy pictured in the given figure has a(n)________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 
A)recessionary; A 
B)recessionary; B 
C)recessionary; C 
D)expansionary; A

Quizplus · Accepted Answer

This economy has a recessionary gap because the short-term equilibrium level of output, which is where AD and SRAS meet at point A, is less than the potential output level Y*.

The Economy Pictured in the Given Figure Has A(n)________ Gap