When an economy's output is than its potential output, the gap is known as a recessionary gap.

When an economy's output is less than its potential output, the gap is known as a recessionary gap. This situation occurs when the actual aggregate output is less than the aggregate output at full employment, which is the economy's maximum sustainable output level.

Here are the steps to understand this concept:

1. Understand Potential Output: Potential output refers to the highest amount of output an economy can sustain over a period of time. It's the maximum amount of goods and services an economy can produce when it is most efficient—that is, when it fully employs its available resources.

2. Understand Actual Output: Actual output is the total amount of goods and services an economy actually produces, regardless of its potential output. It can be less or more than the potential output.

3. Identify the Gap: If the actual output is less than the potential output, there is a gap between what the economy could produce and what it is actually producing. This is known as a recessionary gap.

4. Understand the Implications: A recessionary gap typically indicates that resources are not being fully utilized, often due to unemployment. This underutilization can lead to a slowdown in economic growth, or a recession.

5. Policy Response: To close a recessionary gap, governments often use expansionary fiscal or monetary policies to increase demand and stimulate economic activity. This can include measures like cutting taxes, increasing government spending, or lowering interest rates.

When an economy's output is less than its potential output, the gap is known as a recessionary gap. This situation occurs when the actual aggregate output is less than the aggregate output at full employment, which is the economy's maximum sustainable output level.

Here are the steps to understand this concept:

1. Understand Potential Output: Potential output refers to the highest amount of output an economy can sustain over a period of time. It's the maximum amount of goods and services an economy can produce when it is most efficient—that is, when both labor and capital are utilized at their most efficient level.

2. Understand Actual Output: Actual output is the total amount of goods and services produced by an economy at a given time. It can be less or more than the potential output.

3. Identify the Gap: When the actual output is less than the potential output, a recessionary gap exists. This means the economy is not operating at its full capacity and is underperforming.

4. Understand the Implications: A recessionary gap is often associated with a lack of demand in the economy, which leads to lower production, higher unemployment, and stagnant wages. Policymakers often try to close this gap by stimulating demand through fiscal or monetary policy.

5. Monitor Changes: Over time, as the economy recovers and demand increases, the recessionary gap should decrease. Policymakers and economists monitor these changes closely to inform their decisions.