Gaps and Gap Analysis

Recessionary Gap

By March 17, 2016 December 1st, 2018 No Comments

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Failing To Meet Potential

When you’re talking about the stock market, it’s very important to be familiar with the practice of technical analysis, and the way that tracking and charting market activity can not only help you to understand what’s happening currently, but also what will happen in the future. The recessionary gap is a similar tool created by macroeconomic theory, and it can help people to visualize what is happening when the economy operates at a level below its full-employment equilibrium.

When technical analysts use charts and patterns to analyze the market, they are usually looking for signals that will indicate which direction a stock is trending in, and in which direction it is likely to continue. For investors that are interested in buying low and selling high, it’s important to know when these fluctuations are on the horizon.

For economic analysts, the recessionary gap is an indication that the current level of real gross domestic product has sunk lower than the normal level at full-employment, also referred to as a recession. When this happens, these analysts know that it will put downward pressure on prices in the future. Although economic fluctuations can be frightening, it’s always better to understand the forces at work. There are many different things that can cause an economic recession, including an increase in the nominal exchange rate, which reduces net exports and domestic income, or a significant decline in consumer spending and investing because of decreased worker wages.