An output gap with Y

Question

An output gap with Y < Y*
A)is desirable because it keeps wage costs low.
B)represents a loss of output due to unemployed resources.
C)tends to force prices up.
D)occurs when there is excess demand.
E)is known as an inflationary boom.

Quizplus · Accepted Answer

An output gap with Y < Y* represents a loss of output due to unemployed resources. This means that there is a gap between the economy's potential level of output (Y*) and the actual level of output (Y), indicating that some resources are being underutilized. This is not desirable as it represents a waste of resources and a loss of potential output. In addition, it can lead to negative effects such as lower incomes, reduced investment, and lower tax revenue.

An Output Gap with Y < Y