Question

An economy producing below potential output is considered to be operating in a(n) ______ gap.

-recessionary
-inflationary
-expansionary
-concessionary

Answer 1

An economy producing below potential output is considered to be operating in a recessionary gap. This leads to high unemployment and reflects an underutilization of resources in the economy.

Step-by-step explanation:

In a Keynesian cross diagram, when an economy is producing below potential output, it is considered to be operating in a recessionary gap. A recessionary gap refers to a situation where the equilibrium level of real GDP is below the potential GDP. This leads to high unemployment and reflects an underutilization of resources in the economy.