Question

A recessionary gap implies that at full employment a. savings < investment b. savings = investment...

A recessionary gap implies that at full employment

a. savings < investment

b. savings = investment

c. savings > investment

d. all are possible

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Homework Answers

Answer #1

Ans: savings > investment

Explanation:

A recessionary gap is defined as actual real GDP is less than potential real GDP. The recessionary gap occurs due to fall in aggregate expenditure. AE falls because of decrease in consumption, increase in savings, decrease in investment, decrease government spending or an increase in taxes, a decrease in exports or an increase in imports.

So, a recessionary gap implies that at full employment savings > Investments.

Thus, option [c] is correct answer.

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