When the current state of the economy is such that Real GDP is less than Natural Real GDP, the economy is in a recessionary gap. In this situation, the (actual) unemployment rate is greater than the natural unemployment rate, and there is a surplus in the labor market.
In this case, the real GDP is less than what would be generated with full employment. In a recessionary gap, the economy is operating below the full employment level. Recessionary gaps are also known as contractionary gaps.
When a nation's real GDP is lower than its GDP at full employment, it is said to have a recessionary or contractionary gap. When real wages are in equilibrium and the supply and demand of labor are equal, recessionary gaps diminish.
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