2.5.2 - output gaps

define long term growth trend

the underlying trend rate of economic growth over a longer period of time, determined by the constant increases in the productive capacity of an economy

how can using long term growth trends be helpful when looking at daa

can reduce the impact of outliers

define ‘output gap’

the difference between the actual and maximum potential level of output

positive vs negative output gap

real GDP greater than potential
- rapid inflation

real GDP less than potential
- spare capacity (unemployment)
- slowdown in growth