2.5.2: Output Gaps Flashcards
What is long-term trends?
The average sustainable rate of economic growth over a period of time.
What is actual growth?
Economic growth measured by changes in real GDP.
What is an output gap?
The difference between actual output and what an economy can produce at full capacity.
What is positive output gap?
When actual output is more than what an economy could produce at full capacity.
What is negative output gap?
When actual output is less than what an economy could produce at full capacity.
Why might there be a negative output gap?
-Spare capacity and underutilised resources.
-Welfare system too generous (e.g. high unemployment benefits).
-Available resources not suited to the country’s needs.
Why might that be difficulties in measuring output gap?
-The exact position of the LRAS is unknown.
-It is not possible to measure the productive potential of an economy.
What does P1Y1 represent?
Equilibrium.
What does P2Y2 represent?
Positive output gap.
What does P3Y3 represent?
Negative output gap.
