Output gaps

Positive output gap

Actual growth is greater than full capacity output

Negative output gap

Actual growth is less than what an economy could produce at full capacity

Why is it hard to estimate output gaps

Much harder to quantify the potential of an economy

Characteristics of a boom

Lower unemployment, more consumer spending, less gov spending, less spare capacity, rising real incomes, rising sale of normal goods

Characteristics of a recession

Higher unemployment, less consumer spending, more gov spending, more spare capacity, falling real incomes, rising sale of inferior goods