how to close a recessionary gap by fiscal policy
Suppose the economy experiences an output gap whereby equilibrium GDP = 8800 and Potential GDP = 9000. This is a recessionary gap, because the equilibrium GDP is less than the Potential GDP. Our desire is to close the gap, and in order to do so, we will chose some type of fiscal policy.That is, we will either change taxes or government spending in order to close this recessionary gap of 200.ur desire is to close the gap, and in order to do so, we will chose some type of fiscal policy. That is, we will either change taxes or government spending in order to close this recessionary gap of 200.