The difference between the growth rate of actual and potential GDP is the output gap.

Question

Quizplus · Accepted Answer

The statement is true. The output gap is the difference between the growth rate of actual GDP and the growth rate of potential GDP. A positive output gap indicates that actual GDP is higher than potential GDP, indicating that the economy is operating above its capacity, while a negative output gap indicates that actual GDP is lower than potential GDP, indicating that the economy is operating below its capacity.

The Difference Between the Growth Rate of Actual and Potential