If there is currently a recessionary gap, a fall in aggregate demand would make the recessionary gap larger.

Question

Quizplus · Accepted Answer

A recessionary gap indicates a situation where the aggregate demand is less than the potential output of the economy. In such a situation, a fall in aggregate demand would further decrease the output and production, leading to a larger recessionary gap. Hence, the statement is true.

If There Is Currently a Recessionary Gap, a Fall in Aggregate