How Is It Possible for the Economy to Have a Recessionary

question 51

Multiple Choice

How is it possible for the economy to have a recessionary gap?

• A)Equilibrium is at a GDP level below full employment.
• B)Equilibrium is at a GDP level equal to full employment.
• C)Equilibrium is at a GDP level above full employment.
• D)GDP is rising at full employment.
• E)GDP is falling at full employment.

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Definitions:

Opportunity Cost

The cost of foregone alternatives when one option is chosen over another, representing the benefits that could have been gained by taking the alternate path.

Law of Increasing Cost

The principle that as production of a good expands, the opportunity cost of producing an additional unit rises.

Marginal Output

Marginal Output is the additional quantity of output that is produced by utilizing one more unit of a certain input, holding all other inputs constant, used to assess productivity improvements or decreases.

Diseconomies of Scale

Diseconomies of scale occur when a company or business grows so large that the costs per unit increase, opposite of economies of scale where costs decrease with increasing production.