Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A country with 10% unemployment while its natural rate is 5%
B
An economy operating at full employment with low inflation
C
A nation experiencing high GDP growth and low unemployment
D
A situation where all resources are fully utilized in production
Understanding the Answer
Let's break down why this is correct
Answer
A recessionary gap happens when an economy is not producing as much as it could, leading to higher unemployment and lower overall spending. Imagine a small town where a factory that produces toys suddenly has to close because fewer people are buying toys. As a result, many workers lose their jobs, and those who are still employed may spend less money because they are worried about the future. This situation causes businesses to earn less, leading to even more layoffs and a cycle of reduced economic activity. In this example, the town is experiencing a recessionary gap because it is not reaching its full economic potential.
Detailed Explanation
A recessionary gap happens when unemployment is higher than normal. Other options are incorrect because This option shows full employment, which means everyone who wants a job has one; High GDP growth and low unemployment mean the economy is doing well.
Key Concepts
Recessionary Gaps
Unemployment Rates
Production Possibilities Curve
Topic
Understanding Recessionary Gaps
Difficulty
easy level question
Cognitive Level
understand
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