Your uncle just finished watching the CNBC business channel and declared, "it is completely impossible to have a negative output gap during an economic expansion." Which of the below would be the best response? Group of answer choices You are incorrect. Output gaps measure the rate of inflation and aren't associated with GDP levels. You are correct because it is impossible for an economy to ever have a negative output gap as it is assumed Potential GDP is always rising. You are incorrect. An economy can be expanding but at a level that is still below its potential. You are correct. By definition, an economic expansion is when Real GDP exceeds Potential GDP.
Added by Lindsay S.
Step 1
An output gap is the difference between an economy's actual output (Real GDP) and its potential output (Potential GDP). It measures the extent to which an economy is operating below or above its full capacity. Show more…
Show all steps
Your feedback will help us improve your experience
Jennifer Stoner and 62 other Microeconomics educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
An inflationary output gap is defined to be when the current level of output is: high enough to cause an unexpected amount of inflation: below full employment GDP above full employment GDP equivalent to full employment GDP
Jennifer S.
Price level | Real GDP demanded (billions of 2000 dollars) | Real GDP supplied (billions of 2000 dollars) 90 | 450 | 150 100 | 400 | 250 110 | 350 | 350 120 | 300 | 450 130 | 250 | 550 140 | 200 | 600 The table above shows Econland's economy aggregate demand and aggregate supply schedules. Econland's potential GDP is $300 billion. a. Graph the aggregate demand curve (AD), the short-run aggregate supply curve (SRAS), and the long-run aggregate supply curve (LRAS). Make sure to have price level on vertical axis and real GDP on horizontal axis. b) What are the short-run equilibrium price level and real GDP in Econland? c) What is the long-run equilibrium real GDP? (hint: it is the same as the potential GDP) d) Does Econland have an inflationary gap or a recessionary gap? e) What is the size of the gap? (1 pt) f) What specific fiscal policy would you prescribe to close the gap? g) What specific monetary policy would you prescribe to close the gap?
Akash M.
Which of the following are true of an economy operating with a negative GDP gap? Check all that apply. a) A worker with a college degree is more likely to be unemployed than a worker without one. b) The suicide rate, crime, and political unrest may be higher than in an economy with a similar potential GDP and a lower unemployment rate. c) Actual real GDP is less than potential real GDP. d) A teenage worker is more likely to be unemployed than an older worker.
William F.
Recommended Textbooks
Principles of Economics
Principles of Microeconomics for AP® Courses
Economics
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD