Refer to the above diagram.If the full-employment level of GDP is B and aggregate expenditures are at AE₃, the: A)inflationary GDP gap is BC. B)recessionary GDP gap is BC. C)recessionary GDP gap is AB. D)inflationary expenditure gap is ed.

Question

Quizplus · Accepted Answer

At full-employment GDP, the aggregate expenditures should intersect the 45-degree line at point B. However, in the diagram, the aggregate expenditures intersect the 45-degree line at point A, which means there is a deficiency in aggregate demand. This deficiency results in a recessionary gap AB.

Refer to the Above Diagram