Output Gap and Efficiency - flashcards

Output gap in a PFF

Difference between actual and potential output

Positive output gap

When actual output exceeds potential output

Negative output gap

When actual output is less than potential output

Allocative inefficiency

Lack of utility and people are very dissatisfied

Productive inefficiency

Failure to maximize output and minimize waste

Shift potential output outwards

Increase in output gap due to quantity of resources, improvement in quality of resources, improvement in advance technology, and a increase with productivity

potential growth shift outward what happens to negative output gap?

Negative output gap increases

Actual growth shifts outwards what happens to negative output gap?

Negative output gap decreases

if both actual and potential growth shift outwards what happens?

It depends if the increase in potential growth is greater or less than the increase in actual growth