A recessionary gap exists when the macro economy is in equilibrium at less than the potential output of the the economy because aggregate demand is insufficient to fully employ all of society' s resources. In other words, the equilibrium (AD = AS) occurs to the left of the vertical long-run supply curve. At this point, potential output is reached ( full employment) and if any unemployment occurs, then it is due to structural or frictional; that is, the economy is at its natural rate of employment. True False

Q: Refer to the diagram. The initial aggregate demand curve is AD1 and the initial aggregate supply…

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Q: Consider an economy that is initially in long-run equilibrium. Assume that the long- run aggregate…

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