Using Figure 3 above the distance between what 2 lines illustrate a recessionary expenditure gap?
A) PAE2 to PAE3
B) PAE1 to PAE2
C) Y1 to Y2
D) Y2 to Y3

Question

Using Figure 3 above the distance between what 2 lines illustrate a recessionary expenditure gap?
A) PAE2 to PAE3 
B) PAE1 to PAE2 
C) Y1 to Y2 
D) Y2 to Y3

Quizplus · Accepted Answer

The recessionary expenditure gap is the amount by which equilibrium output falls short of potential output. In Figure 3, the potential output is shown by the vertical line labeled Yp. The equilibrium output is where the aggregate expenditure line (PAE) intersects the 45-degree line. The distance between the potential output line (Yp) and the aggregate expenditure line (PAE) represents the expenditure gap. Therefore, the distance between PAE1 and PAE2 illustrates a recessionary expenditure gap.

Using Figure 3 Above the Distance Between What 2 Lines