Which of the following statements about the GDP gap is not true?
A) It widens during recessions and narrows down during expansions.
B) When an economy's GDP gap equals zero, it operates on its production possibilities curve.
C) It is a measure of output lost as a result of unemployment.
D) There are more goods and services available in an economy as its GDP gap widens.
E) It is equal to potential real GDP minus actual real GDP.

Question

Quizplus · Accepted Answer

The statement "There are more goods and services available in an economy as its GDP gap widens" is not true. In fact, the GDP gap represents the difference between the potential level of output (which would be produced if all resources were fully employed) and the actual level of output. Thus, as the GDP gap widens, the economy is producing less than it could be, resulting in a decrease in the availability of goods and services.

Which of the Following Statements About the GDP Gap Is