A Recessionary Gap Exists When Potential GDP

question 30

Multiple Choice

A recessionary gap exists when potential GDP

• A)falls short of equilibrium GDP.
• B)exceeds equilibrium GDP.
• C)equals equilibrium GDP.
• D)inflation leads to economic disequilibrium.

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Definitions:

Purchasing-Power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach, suggesting that exchange rates should adjust so that identical goods cost the same in different countries.

Foreign-Currency Exchange

The process of converting one country's currency into another, facilitating international trade and investment through varying exchange rates.

Demand Curve

A graph of the relationship between the price of a good and the quantity demanded.

Foreign-Currency Exchange

The process of converting one currency into another currency, typically through a financial institution.