The output gap measures the amount by which

Question

Quizplus · Accepted Answer

The output gap is the difference between actual GDP and potential GDP, so it measures how much the economy is operating above or below its full capacity. Option A is incorrect because nominal GDP includes inflation, while the output gap focuses on the gap between actual and potential levels of production. Option C is the opposite of what the output gap measures. Option D is incorrect because national income is a narrower measure of income that excludes certain types of income, such as income earned by foreign residents. Option E is incorrect because real and nominal GDP measure the same thing, but in different units (one adjusts for inflation).

The Output Gap Measures the Amount by Which