A recessionary gap exists when actual output is
Correct answer: C. Below the economy's potential output
- A. Above the economy's potential output
- B. Equal to the economy's potential output
- C. Below the economy's potential output
- D. Unrelated to the economy's potential output
Explanation
A recessionary gap occurs when actual real GDP falls below potential GDP, leaving productive resources underused. An output level above potential represents an inflationary gap instead.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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