Chapter 19, Problem 5MCQ

To determine

The depicted economy in the graph

Answer to Problem 5MCQ

From the available options, the correct option is recessionary gap.

Explanation of Solution

Recessionary gap is experienced by the economy on the graph because the economy of the country has lower real GDP than its GDP at the level of full employment and there is downward shift in the aggregate expenditure line due to recessions and decline in consumption.

There is change in real GDP which means it is not contractionary gap and inflationary gap measures the difference between current GDP and full employment GDP. And, demand gap is a situation when people are not satisfied with the available products and supply gap shows the difference between the supply and demand of goods in the market.

Therefore, the correct option is b (recessionary gap) and other all options are incorrect.

Economics Concept Introduction

Introduction: An economy of the country is a system of trade through which wealth is made and used in the country such as consumption and production of goods.