what is a recessionary gap 
a recessionary gap or contractionary gap is a macroeconomic term used when a country s real gross domestic product gdp is lower than its gdp at full employment understanding a recessionary gapessentially a recessionary gap refers to the difference between actual and potential production in an economy with the actual being lower than the potential which puts downward pressure on prices in the long run often these gaps are evident during an economic downturn and are associated with higher unemployment numbers 12significant reductions in economic activity for several months will indicate a recession during periods of recession companies will often pull back on spending creating a gap from the contraction in the business cycle economists define a recessionary gap as a lower real income level as measured by real gdp than the real income level at a point of full employment real gdp values all goods and services for a specific time frame adjusted for inflation 1 in the period leading up to a recession there is often a significant reduction in consumer expenditure or investment due to a decrease in the take home pay of workers recessionary gaps and exchange rates