Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increase in consumer demand
B
Rise in production costs
C
Decrease in interest rates
D
Increase in government spending
Understanding the Answer
Let's break down why this is correct
Answer
A recessionary gap happens when the economy is not producing enough goods and services compared to what it could if it were at full capacity. One supply-side factor that can contribute to this gap is a decrease in the availability of resources, such as labor or raw materials. For example, if a natural disaster damages factories, it can reduce production capacity, leading to fewer goods available in the market. This drop in supply can cause businesses to cut back on hiring or investment, which further slows down economic growth. Therefore, when resources become limited, it can create a situation where the economy operates below its potential, contributing to a recessionary gap.
Detailed Explanation
When production costs rise, businesses struggle to make goods. Other options are incorrect because Some might think that more consumer demand helps the economy; People may believe that lower interest rates always boost the economy.
Key Concepts
supply-side factors
Topic
Understanding Recessionary Gaps
Difficulty
easy level question
Cognitive Level
understand
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