According to the aggregate demand/aggregate supply model, what happens in a recessionary gap?

In the context of the aggregate demand/aggregate supply model, a recessionary gap occurs when the actual output of an economy is less than its potential output, leading to unemployment and underutilized resources. The correct answer highlights that the economy can move back toward full-employment gross domestic product (GDP) when resource costs decrease.

During a recession, there is a decrease in demand for goods and services, which puts downward pressure on wages and other resource costs. As these costs decline, businesses find it less expensive to produce products, potentially encouraging increased output and hiring. This shift helps the economy recover from the recessionary gap and move toward its full-employment level of GDP, where all resources are utilized efficiently.

The other choices don’t correctly reflect the dynamics in a recessionary gap. Wages and resource costs typically decrease rather than increase (ruling out the first option). A recessionary gap is characterized by a lack of economic growth, contradicting any notion of achieving higher growth (ruling out the second option). Additionally, a recession generally results in lower inflationary pressures, making inflation occur unlikely within this context (ruling out the last option). Thus, recognizing the pathway through reduced resource costs to recovery encapsulates the essence of moving from a recession