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If we observe an economy adjusting to potential GDP as prices fall and real output increases,we can conclude that _____.
A) the economy was experiencing an expansionary gap
B) there is a labor surplus
C) the economy was experiencing a recessionary gap
D) self-correction is not the process that is occurring
E) there are widespread labor shortages
Recessionary Gap
A situation where actual economic output is lower than the potential output, indicating underutilized resources and unemployment.
Potential GDP
The highest level of economic output that an economy can sustain over a long period without causing inflation.
Real Output
The quantity of goods and services produced, adjusted for inflation, reflecting the true volume of an economy's production.
- Acquire knowledge about how self-regulation processes help in aligning an economy with its potential output.
- Acquire knowledge on the notions of expansionary and recessionary gaps in the economic landscape.
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Learning Objectives
- Acquire knowledge about how self-regulation processes help in aligning an economy with its potential output.
- Acquire knowledge on the notions of expansionary and recessionary gaps in the economic landscape.
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