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?
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