Output gaps

• What is the actual growth rate of economic growth?

  The rate at which real GDP changes from year to year
• How can the long term trend rate of economic growth be calculated?

  It is calculated as the average rate of economic growth over several years, and is determined as the increase in productive capacity which is consistent with a stable rate of inflation
• When is there a positive output gap in the economy?

  When growth rates are higher than the economy can sustain
• What happens if there is a positive output gap?

  Real output and the price level will increase, and there will be lower unemployment as well as a rise in inflation
• When is there a negative output gap in the economy?

  When actual growth rates are below potential growth rates
• What happens if there is a negative output gap?

  Real output and the price level will decrease, and there will be higher unemployment as well as a fall in inflation
• Why are output gaps difficult to measure?

  It is difficult to measure the level of potential output which depends on spare capacity, and this is hard to estimate accurately