2021 · Q26
The situation where the equilibrium level of real GDP falls short of potential GDP is known as
General KnowledgeIndian Economy
- ARecessionary gap
- BInflationary gap
- CDemand-side inflation
- DSupply-side inflation
Explanation
A recessionary (deflationary) gap exists when the equilibrium level of real GDP falls short of potential GDP, indicating under-utilisation of resources and unemployment. An inflationary gap is the reverse (equilibrium above potential). Demand-side and supply-side inflation describe price rises, not an output gap. The described shortfall is the recessionary gap.