Output Gaps

Question 1

Actual growth

Answer 1

Measured by annual percentage change in a country’s GDP

Question 2

Potential growth

Answer 2

Known as trend growth - the estimated annual change in a country’s potential level of national output

Question 3

Negative output gaps

Answer 3

Where actual output is less than potential output

Not producing at YFE

Question 4

Positive output gaps

Answer 4

Where actual output is greater than potential output

• unsustainable on LRAS graph