2.5.2: Output Gaps Flashcards

1
Q

What is an output gap?

A
  • The difference between the actual level of output and the potential level of output
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2
Q

What is a positive output gap?

A

Where the actual output is more than potential output

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3
Q

What are the characteristics of a positive output gap?

A
  • LRAS is left of the equilibrium
  • Unsustainable, as there could be overworking of the factors of CELL ( eg labour is overtime/ exploited)
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4
Q

What is a negative output gap?

A
  • Where actual output is less than potential output
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5
Q

What are the characteristics of a negative output gap?

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