2.5.2: Output Gaps

Question 1

What is an output gap?

Answer 1

• The difference between the actual level of output and the potential level of output

Question 2

What is a positive output gap?

Answer 2

Where the actual output is more than potential output

Question 3

What are the characteristics of a positive output gap?

Answer 3

• LRAS is left of the equilibrium
• Unsustainable, as there could be overworking of the factors of CELL ( eg labour is overtime/ exploited)

Question 4

What is a negative output gap?

Answer 4

• Where actual output is less than potential output

Question 5

What are the characteristics of a negative output gap?

Answer 5

• LRAS is right of the equilibrium
• factors of production are not being used to full potential
• underproduction and under utilisation