output gap
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During a recovery....
AD will rise, so less spare capacity= positive output gap
Output gap
difference between actual GDP and potential GDP
What causes negative output gap
factor resources are under utilized
Main problem with negative output gap
high unemployment and deflation
main problem with positive output gap
inflation
What causes positive output gap
resources working beyond capacity
Negative output gap
when actual GDP is less than potential GDP
Positive output
when actual gdp is greater than potential gpd