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Economic Definition of contractionary gap. Defined.

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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.

 

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