If the short- run macroeconomic equilibrium occurs with real GDP less than Y*, the economy is
A)experiencing an inflationary gap.
B)at its full- employment level of output.
C)experiencing a recessionary gap.
D)operating at full capacity.
E)threatened with an acceleration of inflation.

Question

Quizplus · Accepted Answer

If the short-run macroeconomic equilibrium occurs with real GDP less than Y*, which is the potential or full-employment level of output, it means that the economy is producing below its capacity. This implies that there are unused resources such as labor and capital, and firms are not operating at their optimal level. In this case, there is a recessionary gap, which indicates that the economy is not producing enough to create full employment and meet the needs of consumers.

If the Short- Run Macroeconomic Equilibrium Occurs with Real GDP