A recessionary gap is commonly referred to as
A)the difference between the equilibrium level of real GDP and how much the economy could be producing if it were operating at the short run equilibrium on its long-run aggregate supply curve.
B)the difference between the equilibrium level of real GDP and how much the economy could be producing if it were operating at full employment on its long-run aggregate supply curve.
C)the difference between actual and expected inflation.

Question

Quizplus · Accepted Answer

A recessionary gap occurs when the equilibrium level of real GDP is below the level that the economy could be producing at full employment, which is represented by the long-run aggregate supply curve. Therefore, option B is the correct definition of a recessionary gap. Option A describes a different concept known as a positive output gap, while Option C describes a discrepancy between actual and expected inflation.

A Recessionary Gap Is Commonly Referred to as