If potential GDP for the third quarter of 2012 = $20.4 billion,and the deviation from potential GDP for the third quarter of 2012 = -$1.6 billion,then the output gap was

Question

Quizplus · Accepted Answer

The output gap is calculated as (Actual GDP - Potential GDP) / Potential GDP. Here, the deviation from potential GDP is -$1.6 billion, meaning Actual GDP is $18.8 billion ($20.4 billion - $1.6 billion). The output gap is then (-$1.6 billion / $20.4 billion) * 100% = -7.8%.

If Potential GDP for the Third Quarter of 2012 =