2.5.2: Output gaps

• Positive output gap: Where actual GDP is above potential GDP
• Negate output gap: Where actual GDP is below potential GDP
• A negative output gap suggests that there is some spare capacity in the economy
• A positive output gap suggests that resources in the economy are under strain, as the economy is operating above full capacity
• Sustainable growth: Growth that can be continued into the long run
• Inclusive growth: Growth where all people experience an increase in income and living standard
• Reason the output gap is difficult to measure: Potential output cannot be measured exactly
• Reason the output gap is difficult to measure: Factors like technological advancement change the gap