2.5.2 Output gaps

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5 Terms

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Definition of actual growth rates

  • Measures the percentage change in real national output

  • Calculate by changes in GDP (real national output)

2
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Definition of long-term trends in growth rates /potential growth rate

  • Measures the change in possible level of production in the economy

  • Shown by shift in LRAS

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Positive output gap

  • Occurs when actual GDP is more than potential

<ul><li><p>Occurs when actual GDP is more than potential</p></li></ul><p></p>
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Negative output gap

  • Occurs when actual GDP is less than potential

<ul><li><p>Occurs when actual GDP is less than potential</p></li></ul><p></p>
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Difficulties of measuring output gaps

  • In order to measure the potential growth value, need to measure each of the FOP which is very difficult

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