Definition Definition

What Is Recessionary Gap? Understanding Recessionary Gap with Practical Example

What is Recessionary Gap?

Recessionary Gap is a macroeconomic phrase that describes when a nation's real GDP is lesser than its GDP at high engagements. Also known as the Contractionary Gap, it occurs when an industry is not in balance or functioning at its maximum output capacity in the economic cycle.

Understanding Recessionary Gap

A country's economy does not always run continuously capacity. The prolonged recession is the discrepancy between the prospective long-run equilibrium and the real ones. In the long run, this gap drives prices back down. Economists investigate these gaps to provide data to researchers and policymakers to control the market. Economies will survive recessions, but consumers will suffer less if the decrease in output is minor. A recession is an overall decrease in economic activity, often known as a business cycle downturn. A recessionary gap happens when an industry is on the verge of entering a downturn. As a result, it is also linked to a shrinkage in the business cycle.

Practical Example

Jane and her pals go to the same restaurant daily. It's been a long time since the restaurant had regulars like Jane and her companions. However, during a crisis, consumers spend less on eating out, resulting in restaurant workers getting fewer tips or losing their jobs.

In Sentences

  • To combat the Recessionary Gap, governments apply a stimulating budget to reduce taxation, encourage business activity, and reduce poverty.


Category: Economics
Share it: CITE

Related Definitions

  • Gap analysis
    Gap analysis is a measurement of the sensitivity of bank...