alleryStart learning →In the AD/AS diagram, how is a recession illustrated?
AAs an equilibrium real GDP level substantially below potential GDP
BAs any equilibrium where the price level is above zero
CAs an equilibrium exactly equal to potential GDP
DAs a rightward shift of the aggregate supply curve
Answer & Solution
Correct answer: A. As an equilibrium real GDP level substantially below potential GDP
1. A recession is defined relative to the economy's potential output, not to zero output.
2. When the AD and AS curves intersect well short of the potential GDP line, the economy is in recession.
3. An equilibrium close to potential GDP represents a healthy, growing economy instead.
4. Option C describes a fully employed economy, the opposite of a recession.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 10 "The Aggregate Demand/Aggregate Supply Model", section 10.5 | How the AD/AS Model Incorporates Growth, Unemployment, and Inflation_
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