Question

When actual output is less than potential output there is a(n):

A. recessionary gap.
B. budget surplus.
C. budget deficit.
D. trade deficit.

Answer 1

A recessionary gap occurs when actual output is less than potential output in the economy. It signifies a decrease in production and underutilization of resources, leading to unemployment. Government intervention may be necessary to address a recessionary gap.

Step-by-step explanation:

In economics, when the actual output is less than the potential output, it is known as a recessionary gap. This means that the economy is not producing goods and services at its full potential, resulting in unemployment and underutilization of resources.

For example, during a recession, businesses may cut back on production and lay off workers, leading to a decrease in actual output. This can result in a gap between the actual output and the potential output of the economy.

A recessionary gap can be a sign of economic downturn and may require government intervention through policies such as fiscal stimulus to stimulate economic activity and close the gap.