2.5.2 Output gaps

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4 Terms

1
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what is the distinction between actual growth rates and long-term trends in growth rates?

  • short term vs long term: actual growth rates fluctuate more due to short term factors, while trend growth rates indicate long-term sustainable economic growth.

2
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what is a positive output gap?

  • occurs when actual GDP exceeds potential GDP.

  • indicates the economy is producing above its sustainable capacity, often leading to inflationary pressures.

3
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what is a negative output gap?

  • occurs when actual GDP is below potential GDP.

  • indicates underutilization of resources, high unemployment, and deflationary pressures.

4
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what are the difficulties of measurement?

  • estimation of potential GDP: potential GDP is not directly observable and must be estimated, leading to inaccuracies.

  • structural changes: changes in the economy’s structure, such as technological advancements or demographic shifts, can affect potential GDP estimates.