3.7 LRAS Flashcards
What is the Output Gap?
The Output Gap is the difference between an economy’s actual output and its potential output.
Who is responsible for providing an official forecast of the Output Gap?
The Office of Budget Responsibility (OBR) is responsible for providing an official forecast of the Output Gap.
What data is used to measure the Output Gap?
The OBR uses a range of data (mostly from the ONS) to measure the Output Gap, including: the unemployment rate, rates of underemployment, labour market participation rate, migration flows, the capital stock, average weekly earnings, total factor productivity, business-reported capacity utilization, and recruitment difficulties of firms.
Can the Output Gap be measured directly?
No, the Output Gap cannot be measured directly.
What do you need to know to measure the Output Gap?
To measure the Output Gap, you need to know either: (1) actual output (which is GDP) and potential output (which can only be estimated), or (2) the Output Gap itself.
