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In the long run, a recessionary gap means that: unemployment is below its natura

ID: 2495495 • Letter: I

Question

In the long run, a recessionary gap means that:

unemployment is below its natural rate, causing a decrease in wages and moving real output towards its potential level

unemployment is below its natural rate, causing an increase in wages and moving real output towards its potential level

unemployment is below its natural rate, causing a decrease in wages and moving real output away from its potential level

unemployment is above its natural rate, causing an increase in wages and moving real output towards its potential level

unemployment is above its natural rate, causing a decrease in wages and moving real output towards its potential level

Explanation / Answer

In the long run, a recessionary gap means that unemployment is above its natural rate, causing a decrease in wages and moving real output towards its potential level. The correct answer is option (e). This shows an inflationary gap and may last for a long-run.

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