output gap

(noun)

The difference between an economy's actual GDP and its long-run potential GDP

Related Terms

Examples of output gap in the following topics:

  • Introduction to Monetary Policy

    • A monetary authority will typically pursue expansionary monetary policy when there is an output gap - that is, a country is producing output at a lower level than its potential output.
    • Without a policy intervention the output gap may correct itself, if falling wages and prices shift the short-run aggregate supply curve to the right until the economy returns to the long-run equilibrium.
    • Alternatively, the monetary authority could intervene in order to increase aggregate demand and close the output gap.
    • A lower exchange rate makes a country's goods relatively more affordable for the rest of the world, stimulating exports and further increasing output.

  • Macroeconomic Factors Influencing the Interest Rate

    • In economics, a Taylor rule is a monetary-policy rule that stipulates how much the Central Bank should change the nominal interest rate in response to changes in inflation, output, or other economic conditions.
    • The GDP gap or the output gap is (yt - y*t).
    • If this calculation yields a positive number, it is called an "inflationary gap" and indicates the growth of aggregate demand is outpacing the growth of aggregate supply (or high level of employment), possibly creating inflation, signaling an increase in interest rates made by the Central Bank; if the calculation yields a negative number it is called a "recessionary gap," which is accompanied by a low employment rate, possibly signifying deflation and a reduction in interest rates.
    • It recommends a relatively low interest rate ("easy" monetary policy) in the opposite situation to stimulate output.
    • Describe how the nominal interest rate is influenced by inflation, output, and other economic conditions

  • Expansionary Versus Contractionary Fiscal Policy

    • When the economy is producing less than potential output, expansionary fiscal policy can be used to employ idle resources and boost output.
    • According to Keynesian economics, if the economy is producing less than potential output, government spending can be used to employ idle resources and boost output.
    • In instances of recession, government spending does not have to make up for the entire output gap.
    • Conversely, to close an expansionary gap, the government would increase income taxes, which decreases aggregate demand, the real GDP, and then prices.
    • Crowding out occurs when government spending simply replaces private sector output instead of adding additional output to the economy.

  • Scorecard Measurement

    • Balanced scorecard measurements require extensive data collection and are essential in validating scorecard outputs.
    • Gap analysis is a tool that helps companies compare actual performance with potential performance.
    • Gap analysis can be conducted from the following perspectives:
    • Gap analysis lends itself to the measurement aspect of the balanced scorecard, ensuring that maximum value may be derived from the exercise.
    • Coupled with well-designed and well-thought out dimensions for the scorecard itself, gap analysis is very useful in assessing organizational health.

  • Building a closed-loop eco-industrial park

    • Afterwards, active recruiting takes place to entice businesses whose production processes will help fill any gaps.
    • Helping with the minor retrofitting of existing infrastructure (carrying out modifications to the involved companies so their outputs can be more easily shared).
    • Maintaining ‘anchor tenants' (usually in the form of a wastewater treatment facility or an energy producer) whose continued presence and outputs make industrial symbiosis practical.

  • Oligopoly

    • Cournot's analysis of two sellers of spring water clearly established that the price and output of one seller was a reaction to the price and output of the other seller.
    • If they compete, Cournot concluded that the output would be
    • The output may be homogeneous or differentiated.
    • At the prevailing price, there is a kink in the demand function and an associated gap or discontinuity in the MR (shown as the gap from J to F in Figure VIII.6).
    • The marginal cost function can rise to MC1 or fall to MC2 with no change in output or price.

  • Gap Junctions

    • Gap junctions are also called communicating junctions, macula communicans, or nexuses. 
    • The number of gap junctions shared between two cells can vary as well.
    • The channels in a gap junction aren’t always open. 
    • Gap junctions are found in many places throughout the body. 
    • Gap junctions are responsible for electrochemical and metabolic coupling.

  • Defining and Measuring Income Inequality

    • The downside to this method is that it does not specifically capture where the inequality occurs, simply the degree of severity in the income gap.
    • The gaps between two entropies is called redundancy, which acts as a negative entropy measure in the system.
    • Comparing these gaps and inequality levels (high entropy or high redundancy) is the basic premise behind the Theil Index.
    • Minimizing this inequality is the sign of a mature and advanced society with high standards of living across the board, while substantial income gaps are indicative of a developing or struggling economy.
    • Some powerful economies, like the United States and China, demonstrate high inequality despite high economic power while others, like Switzerland or Norway, demonstrate high equality despite lower economic output.

  • The Gap Model

    • The Service Quality Model, also known as the GAP Model, was developed in 1985.
    • Gap between consumer expectation and management perception: This gap arises when the management or service provider does not correctly perceive what the customer wants or needs.
    • Gap between service quality specification and service delivery: This gap may arise in situations pertaining to the service personnel.
    • Gap between expected service and experienced service: This gap arises when the consumer misinterprets the service quality.
    • The diagram shows the different gaps in the model, including the Knowledge Gap discussed here.

  • Learning the Gender Gap

    • This implies that the gender gap stems from social, rather than biological, origins.
    • In order to determine whether the gender gap is a result of implicit or explicit discrimination, we can look at the adjusted and unadjusted wage gap.
    • The remaining part of the raw wage gap that cannot be explained by variables that are thought to influence pay is then referred to as the adjusted gender pay gap and may be explicitly discriminatory.
    • The total wage gap in the United States is 20.4 percent.
    • This PSA by the European Union illustrates the gender pay gap in Europe.