The output gap can best be described as
A) the percentage difference between real GDP and its potential.
B) the difference between GDP in the current year compared to the previous year.
C) the difference between a nation's GDP and that of the nation with the highest GDP.
D) the difference between GDP and its forecasted level.

Question

Quizplus · Accepted Answer

The output gap is the difference between actual (or real) GDP and potential GDP. It is usually expressed as a percentage difference between the two, and is used as an indicator of the economy's overall health and its cyclical position. A negative output gap means that the economy is performing below its potential, while a positive output gap means that it is performing above its potential. Therefore, option A is the most accurate description of the output gap.

The Output Gap Can Best Be Described as