Output Gaps Flashcards
(8 cards)
What is the Output Gap
Difference between the actual level of GDP and its estimated potential level
How do you show negative output gap on AD-AS diagram
Equilibrium level of national income is less than long run potential output
What is a positive output gap
Where actual GDP is above potential GDP
What is a positive output gap a sign of
Possible excess aggregate demand
What is a negative output gap
Where the economy has large margin of spare capacity of factor resources
How to combat a negative output gap
Short run economic growth
Helps to reduce spare capacity - reduces a negative output gap
When does a negative output gap exist
When the actual level of real GDP is below the trend line
During a recession
When does a positive output gap exist
When the actual level of real GDP is likely to be above the trend line
During an inflationary boom
