A recessionary gap occurs when
A) the short-run aggregate supply curve shifts rightward.
B) real GDP is less than potential GDP.
C) the economy is at its long-run equilibrium.
D) government interferes with the economy.

Question

Quizplus · Accepted Answer

A recessionary gap, also known as a contractionary gap, is a situation where real gross domestic product (GDP) is less than potential GDP. In other words, the economy is producing below its full capacity, leading to high unemployment rates and reduced economic growth. This can occur due to various factors such as a decline in consumer spending, a decrease in business investment, and so on.

A Recessionary Gap Occurs When