Output gaps

What does actual economic growth do?

Measures the percentage change in real national output - as calculated by changes in the GDP

What type of economic growth is actual economic growth based on?

Current economic growth

What type of economic growth is Trend rate growth growth based on?

Possible economic growth

What does trend rate growth do?

Measures the change in possible level of national output - shown by the shift in LRAS

What are three synonyms for actual growth?

• Short run economic growth

• Growth in national income

• GDP growth

What are three synonyms for trend rate growth?

• Long run economic growth

• Potential growth

• Long run trend rate growth

When does an output gap occur?

Actual and potential GDP are different

What does it mean if actual GDP is less than potential?

There is a negative output gap

What does it mean if actual GDP is more than potential?

Positive output gap

Why is having a negative output gap bad and why?

Missed opportunity since possible extra income and extra jobs are not being created

Why is having a negative output gap good and why?

it gives room for future short run economic growth without needing to stop and maximum possible production

The economy has spare capacity - what does this mean?

It has room to grow further

What do NeoClassical economists believe about negative output gaps and why?

Negative output gaps will correct themselves in the long run because labour and other resources get cheaper, firms will expand production back to LRAS

What do Keynesian economists believe about negative output gaps and why?

If confidence is very low in the economy, it might be the only government stimulus can help the economy

How can a positive output even occur?

Positive outputs are temporary because you can only make more for a short time

Why is having a positive output gap good?

High levels of production

Why is having a positive output gap bad?

Resources get overused and supply falls and may even become permanently damaged

During a negative output gap is there high or low economic growth?

Relatively low

During a positive output gap is there high or low economic growth?

Relatively high or record high

During a negative output gap is unemployment low or high?

Relatively high in comparison to the maximum possible

During a positive output gap is unemployment low or high?

relatively low or zero

During a negative output gap is inflation low or high?

Relatively low

During a positive output gap is inflation low or high?

Relatively high or record high