Topic Videos
Output Gap and the Economic Cycle
- Level:
- AS, A-Level
- Board:
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 2 Dec 2020
This updated video explores the concept and measurement of the output gap using AD-AS analysis and UK economic data.
What is the output gap?
- The output gap is the difference between the actual level of GDP and its estimated potential level.
- The output gap is usually measured as a percentage of the level of potential output.
Negative output gap
- When actual GDP is less than potential GDP
- Some factor resources are under-utilized e.g. there is some demand-deficient unemployment in labour market
- Main problem is likely to be rising unemployment and possible deflation risk
Positive output gap
- Actual GDP is greater than the estimated potential GDP
- Some resources are working beyond their usual capacity (e.g. extra shift work & overtime)
- Main problem is rising demand-pull and cost-push inflationary pressures
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