[This is part of the series: The Complete Guide To Economics 101.]
What is a recessionary gap?
A Recessionary Gap is the amount which “Equilibrium Output” is below “Potential Output.”
This is where Potential Output is simply the intersection of Aggregate Supply and Aggregate Demand – and Equilibrium Output is output that falls below Potential Output.
A recessionary gap is caused by a downward shift in the Aggregate Supply curve.