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Explore TopicChoose the Best Answer
A
It shifts the PPC outward, indicating increased potential output.
B
It shows a point inside the PPC, indicating inefficiencies in resource usage.
C
It moves the economy along the PPC to a more efficient production point.
D
It has no impact on the PPC, as it only affects unemployment rates.
Understanding the Answer
Let's break down why this is correct
Answer
A recessionary gap occurs when an economy, like Zeta, is not producing as much as it could, which means it is operating inside its production possibilities curve (PPC). The PPC shows the maximum output an economy can achieve with its resources and technology. When there is a recessionary gap, the economy is inefficient because it is not using all its resources effectively, leading to lower production of goods and services. For example, if Zeta has the capacity to produce 100 units of a product but is only producing 70 due to high unemployment and low consumer spending, it is not reaching its full potential. This situation indicates that the economy is underperforming, and policymakers may need to take action to boost demand and move the economy back toward full production.
Detailed Explanation
A recessionary gap means the economy is not using all its resources well. Other options are incorrect because Some might think a recession means more output; This option suggests moving along the curve to be more efficient.
Key Concepts
Recessionary Gap
Production Possibilities Curve
Unemployment Rate
Topic
Understanding Recessionary Gaps
Difficulty
medium level question
Cognitive Level
understand
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