2.5.2 Output Gaps

Question 1

define an output gap

Answer 1

the difference between the actual level of real GDP and its estimated potential level

Question 2

what is potential output

Answer 2

potential output represents the level of production an economy can achieve when all resources are fully employed without causing inflationary pressures

Question 3

what is a negative output gap

Answer 3

a situation where an economy’s actual output or real GDP is below its potential output