Output gap indicates economic health from "summary" of EBOOK: Macroeconomics by Rudiger Dornbusch,Stanley Fischer,Richard Startz
The output gap is a crucial concept in understanding the state of an economy. It represents the difference between the actual level of output in the economy and the potential level of output that could be produced if all resources were fully employed. When the economy is operating below its potential level of output, there is said to be a negative output gap. This indicates that there are unused resources in the economy, such as labor and capital, which could be put to work to increase production. In this situation, there is room for the economy to grow and improve, as it is not operating at full capacity. Conversely, when the economy is operating above its potential level of output, there is a positive output gap. T...
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