The output gap of zero indicates that

Question

Quizplus · Accepted Answer

A zero output gap means actual real GDP is equal to the natural real GDP, which is the level of output that the economy would produce if all resources were fully employed. This implies that there is no cyclical unemployment, and the economy is operating at full capacity. It does not necessarily mean that there is a balance between unemployment and inflation, as other factors such as supply and demand shocks can affect the level of inflation.

The Output Gap of Zero Indicates That