2.5.2 Output gaps
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7 Terms
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Long run trend growth rate
The average sustainable rate of economic growth over a period of time
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Actual growth rate
The change in real GDP over time, which makes up the business cycle.
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Output gap
The difference between actual level of GDP and maximum potential output.
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Positive output gap
A point at which current level of output exceeds maximum potential output.
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Negative output gap
A point at which current level of output is less than maximum potential output.
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Difficulties of measuring output gap
The output gap is difficult to measure because the exact position of LRAS is unknown and initial estimates of real GDP are often inaccurate.
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Classical output gaps
