Recessionary Gap
Definition
A recessionary gap occurs when the actual level of output in an economy is below its potential level, resulting in high unemployment and underutilization of resources.
Analogy
Imagine a basketball team that has several injured players and is missing key members. As a result, they are unable to perform at their full potential and struggle to score points. This represents a recessionary gap where the team's actual performance falls short of what it could be.
Related terms
Aggregate Demand: The total demand for goods and services in an economy at a given price level.
Fiscal Policy: Government actions related to taxation and spending aimed at influencing the overall economy.
Unemployment Rate: The percentage of the labor force that is actively seeking employment but unable to find jobs.
"Recessionary Gap" appears in:
Study guides (7)
AP Macroeconomics - 3.5 Equilibrium in Aggregate Demand-Aggregate Supply (AD-AS) Model
AP Macroeconomics - 3.7 Long-Run Self-Adjustment
AP Macroeconomics - 3.8 Fiscal Policy
AP Macroeconomics - 4.6 Monetary Policy
AP Macroeconomics - 5.3 Money Growth and Inflation
AP Macroeconomics - 5.4 Deficits and the National Debt
AP Macroeconomics - 5.5 Crowding Out
Additional resources (1)
Practice Questions (12)
Which of the following is a characteristic of a recessionary gap in the economy?
Which of the following would create a recessionary gap?
Which of the following graphs would feature a recessionary gap?
Which definition best represents a recessionary gap?
What happens to unemployment levels in an recessionary gap?
What was the relationship between the potential and real GDP during the U.S. economy's recessionary gap in 2005?
What does a recessionary gap represent in the economy?
What does the gap between Q2 and Yf represent in the context of a recessionary gap?
In a recessionary gap, where does the equilibrium point (B) lie in relation to the long-run aggregate supply (LRAS) curve?
What is the main consequence of the economy self-correcting in response to a recessionary gap?
Why is it important for the aggregate supply (SRAS) curve to self-correct in response to a recessionary gap?
When the economy is experiencing a recessionary gap, which fiscal policy action should the government take to close the gap?
Resources
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