Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The economy is producing at its maximum potential output.
B
There are inefficiencies in the labor market leading to underutilization of resources.
C
The government has implemented effective monetary policies.
D
Consumer demand has increased significantly.
Understanding the Answer
Let's break down why this is correct
Answer
A recessionary gap occurs when the actual unemployment rate is higher than the natural rate of unemployment, which is the rate that an economy can sustain without causing inflation. In Zeta, the unemployment rate is 9%, which is 4% higher than the natural rate of 5%. This suggests that there is not enough demand for goods and services, leading businesses to lay off workers. One possible reason for this lack of demand could be a decrease in consumer spending due to economic uncertainty or reduced income. For example, if people are worried about their job security, they may choose to save money instead of buying new products, causing businesses to struggle and leading to higher unemployment.
Detailed Explanation
When the unemployment rate is high, it means many people want to work but can't find jobs. Other options are incorrect because This answer suggests the economy is doing its best, but that's not true here; This option implies that good government policies are in place, but that doesn't match the high unemployment.
Key Concepts
Recessionary Gaps
Unemployment Rates
Production Possibilities Curve
Topic
Understanding Recessionary Gaps
Difficulty
medium level question
Cognitive Level
understand
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