Recessionary Gap

AAA

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. Recession

    A significant decline in activity across the economy, lasting ...
  2. Real Gross Domestic Product (GDP)

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

    A situation in which all available labor resources are being ...
  4. Below Full Employment Equilibrium

    A macroeconomic term used to describe a situation where an economy's ...
  5. Inflationary Gap

    A macroeconomic condition that describes the distance between ...
  6. Okun Gap

    A macroeconomic term that describes the situation when an economy's ...
Related Articles
  1. The Ups And Downs Of Investing In Cyclical ...
    Investing

    The Ups And Downs Of Investing In Cyclical ...

  2. The Impact Of An Inverted Yield Curve
    Bonds & Fixed Income

    The Impact Of An Inverted Yield Curve

  3. How The Federal Reserve Manages Money ...
    Personal Finance

    How The Federal Reserve Manages Money ...

  4. Tips For Recession-Proofing Your Portfolio
    Bonds & Fixed Income

    Tips For Recession-Proofing Your Portfolio

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center