when production levels fluctuate prices change to compensate this price change is considered an early indicator that an economy is moving into a recession and may lead to less favorable exchange rates for foreign currencies 
an exchange rate is merely one country s currency in comparison with that of another country at parity the two currencies exchange one for one countries might adopt monetary policies to lower rates in an effort to encourage foreign investment or raise rates to encourage internal consumption of homemade products the change in exchange rates affects the financial returns on exported goods lower foreign exchange rates mean less income for exporting countries and further drives a recessionary trend offsetting recessionary gapsalthough it represents a downward economic trend a recessionary gap can remain stable suggesting short term economic equilibrium below the ideal which can be as damaging to an economy as an unstable period this instability is because prolonged downward periods of lower gdp production inhibit growth and contribute to sustained higher unemployment levels policymakers may choose to implement an expansionary policy a stabilization policy to close the gap and increase real gdp monetary authorities might increase the amount of money in circulation in the economy by lowering interest rates and boosting government spending the recessionary gap and unemploymenta more important outcome of a recessionary gap is increased unemployment 2 during an economic downturn the demand for goods and services lowers as unemployment rises if prices and wages remain unchanged this can further elevate unemployment levels in a cycle which feeds upon itself higher unemployment levels reduce overall consumer demand which reduces production and lowers the realized gdp as the amount of output continues to fall fewer employees are required to meet production demand resulting in additional job losses and further reducing the need for goods and services as a company s profits stagnate or decline it cannot offer higher wages some industries may experience pay cuts due to internal business practices or the effect of economic circumstances for example during a recession people spend less on going out to eat which means that restaurant workers receive less income in the form of tips recessionary gap examplein december 2018 the u s labor market as a whole was at full employment with an unemployment rate of 3 9 and there was no recessionary gap 3 however not all parts of the country were at full employment and some individual states were experiencing a recessionary gap for instance new york was at full employment and most large cities were economically secure 4 however the picture was very different in rural areas where jobs were more difficult to find in west virginia for example the decimated coal mining industry brought the unemployment rate to 5 3 with little economic productivity 5 additionally west virginia was the fourth highest state with a poverty rate around 18 6