The output gap is negative when:
A)potential GDP exceeds actual GDP.
B)aggregate expenditure is greater than planned output.
C)the IS curve and the MP curve meet.
D)there is a positive spending shock.

Question

Quizplus · Accepted Answer

The output gap is defined as the difference between potential GDP and actual GDP. A negative output gap occurs when actual GDP is lower than potential GDP, indicating that there is spare capacity in the economy. Therefore, option A is correct. Options B, C, and D do not accurately describe the occurrence of a negative output gap.

The Output Gap Is Negative When