2.5.2

Question 1

Actual growth

Answer 1

The percentage increase in a country’s real GDP

Question 2

Long term trend in growth rates

Answer 2

Long run expansion of the productive potential of an economy
Caused by increases in AS
What an economy could produce if resources are fully employed

Question 3

Output gap

Answer 3

An output gap occurs when there is a difference between the actual level of out out and the potential level of output
It is measured as a percentage of national output

Question 4

Negative output gap

Answer 4

Occurs when the actual level of output is less than the potential level of output

Question 5

A positive output gap

Answer 5

Occurs when the actual level of output is greater than the potential level of output
Could be due to resources being used beyond the normal capacity such as if labour works over time

Question 6

Difficulties with measuring the output gap

Answer 6

• difficult to estimate trend in a series of data
• the structure of the economy often changes, which means estimates may not always be accurate
• changes in the exchange rate might offset some inflationary effects of a positive output gap
• data is not always reliable, especially from Emerging markets and extrapolating data from past trend might lead to uncertainties