2.5.2 - Output gaps

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Created by
Tayyibah Hussain

Cards (4)

  • An output gap is the difference between the actual level of GDP and the estimated long-term value for GDP
  • Keynesian economists:
    • There is a positive output gap between Y1 and Y2. Keynesians believe that output gaps exist in both the short and long run.
  • Classical economists
    A negative output gap is between Ye and Y1, and a positive output gap is between Ye and Y2.
  • Classical economists believe markets clear in the long run, so there is full employment. They believe there are output gaps in the short run