The output gap can be used to estimate the extend to which the Fed misses its goal of
A) maximum employment.
B) stable prices.
C) moderate long-term interest rates.
D) monetary policy.

Question

Quizplus · Accepted Answer

The output gap is the difference between actual and potential real gross domestic product (GDP), meaning it represents the difference between the current level of economic activity and the level that would correspond with full utilization of the economy's resources. When the output gap is negative, it implies that the economy is producing less than its potential, indicating that there is slack in the labor market and unemployment is above its natural rate. This suggests that the Fed is missing its goal of maximum employment, as there is still room for improving labor market conditions.

The Output Gap Can Be Used to Estimate the Extend