Output Gaps

Question 1

What is a negative output gap

Answer 1

When the actual growth is less than the potential growth

Question 2

What is another name for a negative output gap?

Answer 2

Deflationary/recessionary gap

Question 3

What is a positive output gap?

Answer 3

When the actual growth is higher than the potential growth (inflationary gap)

Question 4

What evaluative points could you mention for a negative output gap?

Answer 4

To shift AD to the right by expansionary fiscal/monetary policies to then hit macroeconomic objectives (TIGERS)

However if all spare capacity used in an economy, no growth avaliable by shifting ad to the right (inflationary pressure)

Question 5

What evaluative points could you mention for a positive output gap?

Answer 5

To shift AD to the left by contractionary fiscal/monetary policies to then hit macroeconomic objectives