Output Gaps Flashcards

1
Q

What are output gaps?

A

The difference between the long-term trend rate of growth and fluctuations in real GDP.

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2
Q

What is a negative output gap?

A

When actual output in an economy falls below the trend output. This may occur during a recession when the economy is underperforming due to a fall in AD.

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3
Q

What are the characteristics of a negative output gap (4)?

A

1) High unemployment rates.
2) Downward pressure of inflation.
3) Low business and consumer confidence.
4) Underutilised resources.

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4
Q

What is a positive output gap?

A

When actual output in an economy is greater than the trend output. This may occur during an economic boom. An economy can perform above it’s productive potential for a period of time when the factors of production are being over used.

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5
Q

What are the characteristics of a positive output gap (4)?

A

1) Over-utilised resources.
2) Upwards inflationary pressure.
3) Low unemployment rates.
4) High business and consumer confidence.

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