Macroeconomics

‭Recessionary Gap on PPC, AD-AS Model, and Phillips Curve Model‬ ‭A recessionary gap is an output gap characterized by a high unemployment and low price level at an‬ ‭equilibrium below the economy’s full potential. It is illustrated on the three models as follows:‬

‭AD-AS‬‭model:‬ ‭AD,‬‭SRAS,‬‭and‬‭LRAS‬‭intersect‬‭at‬ ‭point‬ ‭X‬ ‭below‬ ‭the‬ ‭long-run‬ ‭equilibrium.‬ ‭Here,‬ ‭actual output (Y₁) < potential output (Y‬ ‭f‬ ‭).‬

‭PPC:‬ ‭The‬ ‭economy‬ ‭is‬ ‭operating‬ ‭at‬ ‭point‬ ‭X‬ ‭or‬ ‭any‬ ‭other‬ ‭point‬‭inside‬‭the‬‭curve,‬‭indicating‬‭an‬ ‭underutilization‬ ‭of‬ ‭resources‬ ‭because‬ ‭the‬ ‭economy‬ ‭is‬ ‭not‬ ‭producing‬ ‭at‬ ‭its‬ ‭maximum‬ ‭potential.‬

‭Phillips‬ ‭curve‬ ‭model:‬ ‭The‬ ‭economy‬ ‭is‬ ‭operating‬‭at‬‭point‬‭X‬‭or‬‭any‬‭other‬‭point‬‭beyond‬ ‭LRPC.‬ ‭Here,‬ ‭actual‬ ‭unemployment‬ ‭(UR₁)‬ ‭>‬ ‭natural‬ ‭rate‬ ‭of‬ ‭unemployment‬ ‭(NRU)‬ ‭and‬ ‭expected‬ ‭inflation‬ ‭rate‬ ‭>‬ ‭actual‬ ‭inflation‬‭rate,‬ ‭indicating‬‭a‬‭high‬‭unemployment‬‭rate‬‭and‬‭a‬‭low‬ ‭inflation rate.‬

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