Economic Definition of contractionary gap. Defined.
Offline Version: PDF
Term contractionary gap Definition: The difference between the equilibrium real production achieved in the short-run aggregate market and full-employment real production the occurs when short-run equilibrium real production is less than full-employment real production. A contractionary gap, also termed a recessionary gap, is associated with a business-cycle contraction. This is one of two alternative output gaps that can occur when short-run production differs from full employment. The other is an expansionary gap.