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


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