Recessionary Gap

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DEFINITION of 'Recessionary Gap'

A term routed in macroeconomic theory that summarizes the situation where an economy is operating at below its full-employment equilibrium. Under this condition, the level of real gross domestic product (GDP) is currently lower then it is at full-employment, which puts downward pressure on prices in the long run.

INVESTOPEDIA EXPLAINS 'Recessionary Gap'

A recessionary gap happens when an economy is falling into a recession, which is defined as a lower real level of income (as measured by real GDP) then the full-employment level. An economic recession can happen in a number of ways, including a higher nominal exchange rate, which will reduce net exports and domestic income, and a large reduction in consumer expenditure or investment due to a decrease in take home pay by workers.

RELATED TERMS
  1. Below Full Employment Equilibrium

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  2. Real Gross Domestic Product (GDP)

    An inflation-adjusted measure that reflects the value of all ...
  3. Recession

    A significant decline in activity across the economy, lasting ...
  4. GDP Gap

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  5. Equilibrium

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  6. Full Employment

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