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RECESSIONARY GAP, KEYNESIAN MODEL: The difference between equilibrium aggregate production achieved in the Keynesian model and full-employment aggregate production that occurs when equilibrium aggregate production is less than full-employment aggregate production. A recessionary gap, also termed a contractionary gap, is associated with a business-cycle contraction. The prescribed Keynesian remedy for a recessionary gap is expansionary fiscal policy. This is one of two alternative output gaps that can occur when equilibrium generates production that differs from full employment. The other is an inflationary gap.

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RECOVERY:

The early phase of a business-cycle expansion that occurs shortly after a contraction has ended. During a recovery, the unemployment rate remains relatively high, but is beginning to fall, and real gross domestic product begins to increase, usually rapidly. However, because the contraction remains fresh in the minds of many, it may not be immediately clear that the trough of the contraction has actually ended.
A business-cycle recovery is a transitional period in which the economy is beginning an expansion, but many of the problems of the preceding contraction continue to linger. The unemployment rate generally remains at or close to their contractionary highs, but it is falling. Aggregate production remains low, but it is rising.

The public is "guardedly optimistic" during a recovery, hoping but not absolutely certain that the contraction has ended and that an expansion is underway. Leading indicators might suggest that the economy is heading into an expansion, but a clear confirmation usually occurs only several months after the fact.

A Graphical Highlight

Moving On Up
Business Cycle
The diagram at the right presents a simple business cycle. The red line represents the value of real gross domestic product (real GDP) over a period of several months. The blue line is potential real GDP, the amount of real GDP that the economy can produce by fully employing all resources.

Click the [Recovery] button to highlight the early recovery of the expansion phase of this business cycle. The shaded segment of the real GDP line between points B and C is the expansion. Clearly real GDP increases over this segment. The early portion of this expansion, near the business-cycle trough, is the recovery.

While there is no official designation of a recovery like there is for expansion and contraction, that portion of real GDP between point B and the blue long-run trend line of potential real GDP can be thought of as the recovery. Over this segment, real GDP lies beneath the long-run trend line and is moving back to potential real GDP and full employment.

While it is graphically convenient to mark the end of the recovery by the intersection of the red actual real GDP line and the blue potential real GDP line, there is seldom a clear-cut end to a recovery like there is for a contraction-ending trough or an expansion-ending peak. A recovery is merely the early part of an expansion. Identifying the end of a recovery is much like identifying the end of childhood when a child becomes an adult.

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Recommended Citation:

RECOVERY, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2019. [Accessed: December 11, 2019].


Check Out These Related Terms...

     | business cycles | business cycle phases | expansion | contraction | peak | trough | recession | potential real gross domestic product | long-run trend |


Or For A Little Background...

     | full employment | macroeconomics | macroeconomic goals | mixed economy | economic analysis | production possibilities |


And For Further Study...

     | business cycle indicators | investment business cycles | political business cycles | demand-driven business cycles | supply-driven business cycles | stabilization policies | Bureau of Economic Analysis | National Bureau of Economic Research | unemployment | inflation |


Related Websites (Will Open in New Window)...

     | Bureau of Economic Analysis | National Bureau of Economic Research | The Conference Board |


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