Does an expansionary gap or a recessionary gap exist if short-run output is $21.0 trillion and potential output is $20.0 trillion?
A) an expansionary gap
B) a recessionary gap
C) both an expansionary gap and a recessionary gap
D) neither an expansionary gap nor a recessionary gap
E) The actual gap is equal to potential output.

Question

Quizplus · Accepted Answer

An expansionary gap exists when actual output exceeds potential output. In this scenario, short-run output is $21.0 trillion and potential output is $20.0 trillion, indicating that the economy is producing more than its long-term capacity. Therefore, an expansionary gap exists.

Does an Expansionary Gap or a Recessionary Gap Exist If