Glossary · Macro · Aggregate demand and supply

Recessionary gap

When real GDP sits below potential output, so the short-run equilibrium lies to the left of LRAS. Unemployment is above its natural rate. Left alone, falling wages eventually shift SRAS right and close it, but that can take years.

Also called: negative output gap, contractionary gap

Watch it happen step by stepTaught in: Macro Equilibrium

Related terms

Output gapInflationary gapSelf-correctionCyclical unemployment

More from aggregate demand and supply

Aggregate demand (AD)Business cycleLong-run aggregate supply (LRAS)Macroeconomic equilibriumPotential output

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