b) Output gaps

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Last updated 8:14 PM on 5/19/26
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4 Terms

1
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  • define output gap

  • difference in

  • actual output level (RGDP)

  • and potential output level (YFE level)

2
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  • define positive output gap

  • actual output level > potential output level

3
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  • define negative output gap

  • actual output level < potential output level

4
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  • state why output gaps are difficult to measure

  • maximum productive potential → theoretical not observable

  • changes in the factors that affect LRAS → changes the maximum productive potential of the economy