Question

How would you explain the effect that the recessionary gap, or the effect that the inflationary gap would have on the definition of macroeconomics shown in EXGA criteria?

Answer 1

A recessionary gap happens when an economy is falling into a recession, which is defined as a lower real level of income, as measured by real GDP, then the full-employment level. An economic recession can happen in a number of ways, including a higher nominal exchange rate, which reduces net exports and domestic income, and a large reduction in consumer expenditure or investment due to a decrease in take-home pay by workers.