When the macroeconomic equilibrium is such that real GDP is less than potential real GDP,the economy is suffering from ________,and the government policy to eliminate this gap will ________ real GDP and ________ the price level.
A)a recessionary gap;decrease;decrease
B)an inflationary gap;increase;decrease
C)a recessionary gap;increase;increase
D)an inflationary gap;decrease;increase
E)a recessionary gap;decrease;increase

Question

Quizplus · Accepted Answer

When real GDP is less than potential GDP, the economy is in a recessionary gap. Government policy to eliminate this gap typically involves increasing aggregate demand, which increases real GDP and the price level.

When the Macroeconomic Equilibrium Is Such That Real GDP Is