recessionary gap

A recessionary gap occurs when an economy's actual output (what it produces) is less than its potential output (what it could produce if fully employed). This gap indicates unused resources like labor and capital, leading to higher unemployment and lower income levels. It typically results from insufficient demand for goods and services, causing economic slowdown. Policymakers often try to close this gap by stimulating spending through measures like lowering interest rates or increasing government spending, aiming to boost production and employment to reach the economy's full potential.