A recessionary gap occurs when ________ so that real GDP is ________ potential GDP.
A) aggregate supply decreases; less than
B) aggregate demand increases; greater than
C) aggregate supply increases; less than
D) aggregate demand decreases; less than
E) potential GDP decreases; greater than

Question

Quizplus · Accepted Answer

A recessionary gap occurs when aggregate demand decreases, leading to a situation where real GDP is less than potential GDP. This is because a decrease in aggregate demand leads to lower production levels and underutilization of resources, including labor, resulting in real GDP falling below the level of potential GDP.

A Recessionary Gap Occurs When ________ So That Real GDP