The economy's output gap is defined as the
A)difference between actual GDP and potential GDP.
B)level of total output that would be produced if capacity utilization is at its normal rate.
C)difference between actual national income and desired aggregate expenditure.
D)result of economic growth.
E)difference between nominal GDP and real GDP.

Question

Quizplus · Accepted Answer

The output gap is the difference between actual GDP and potential GDP. Potential GDP is the level of output that would be produced if all factors of production were being used at their normal rates. Thus, the output gap measures the gap between the actual and potential levels of economic activity, which can be used to gauge the health of the economy and the need for policy interventions.

The Economy's Output Gap Is Defined as the