The difference between an economy's actual and potential output is quantified by the term "output gap" in economics.
What Is the Output Gap?
- The business cycle's (commonly known as the business cycle) proximity to an economy's long-term potential output is one factor that worries economists and policymakers.
- In other words, they are concerned whether GDP is exceeding or falling short of its potential as well as whether it is increasing or decreasing.
- The output gap can move in one of two directions, positive or negative, just like GDP can increase or decrease. Both are not optimal. Actual output that exceeds full capacity results in a positive output gap.
- When an economy's actual output falls short of what it could produce at maximum capacity, this is known as a negative output gap. If the gap is negative, it indicates that the economy has slack or extra capacity because demand isn't strong.
- An economy may be overworking or underusing its resources if there is an output gap, which indicates that the economy is not operating efficiently.
To Learn more About output gap refer to:
https://brainly.com/question/29214028
#SPJ4
