If an economy has a positive output gap of 2.75%, this means:

Question

Quizplus · Accepted Answer

A positive output gap means that the actual output (GDP) is above the potential output (potential GDP), indicating that the economy is producing more than it is capable of producing in the long run. Therefore, the correct option is B. Option A is incorrect because a positive output gap does not necessarily mean high unemployment; it depends on other factors such as labor market conditions. Option C is incorrect because inflation is not directly related to output gap. Option D is incorrect because a positive output gap means that GDP is above potential GDP, not below it.

If an Economy Has a Positive Output Gap of 2