📚 Learning Guide
Understanding Recessionary Gaps
easy

What is the primary cause of a recessionary gap as it relates to aggregate supply?

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Learning Path
Learning Path

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Choose the Best Answer

A

Decrease in aggregate demand

B

Increase in consumer spending

C

Rise in aggregate supply

D

Government investment in infrastructure

Understanding the Answer

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Answer

A recessionary gap occurs when the total goods and services produced in an economy, known as aggregate supply, is less than what people want to buy at full employment. This usually happens when there is a decrease in demand for products and services, leading businesses to cut back on production and lay off workers. For example, if many people stop buying cars, car manufacturers will produce fewer vehicles, which can lead to job losses in that industry. As a result, the overall economy slows down, and the gap between what is produced and what is needed widens. In simple terms, a recessionary gap shows that the economy is not using its resources efficiently, leading to unemployment and lower economic growth.

Detailed Explanation

A recessionary gap happens when people buy less stuff. Other options are incorrect because Some might think that if people spend more, the economy will grow; It's easy to think that more supply means a better economy.

Key Concepts

aggregate supply
Topic

Understanding Recessionary Gaps

Difficulty

easy level question

Cognitive Level

understand

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