b) Output gaps

b) understanding of positive and negative output gaps and the difficulties of measurement

output gap = different between actual output level (RGDP) and maximum potential output level (Y_FE level)

positive output gap = actual output level > maximum productive potential output level

negative output gap = actual output level < maximum productive potential output level

output gaps → difficult to measure

• maximum productive potential → theoretical not observable

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