PRC-3 · Chapter 13 · Question 41 of 50
If an economy's aggregate spending line intersects the 45-degree line at an output level far to the left of the full-employment potential, the economy is suffering from a:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Recessionary (Deflationary) gap
Explanation
A recessionary gap exists when the equilibrium level of GDP is significantly lower than the full-employment level, leaving labor and factories unused.
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