In the IS curve, $\tilde { Y } _ { t }$ is given by ________, where $Y _ { t }$
Is current output and $\bar { Y } _ { t }$ Is potential output.
A) $Y _ { t } / \bar { Y } _ { t }$
B) $\left( Y _ { t } - \bar { Y } _ { t } \right) / \bar { Y } _ { t }$
C) $\left( \bar { Y } _ { t } - Y _ { t } \right) / \bar { Y } _ { t }$
D) $Y _ { t } - \bar { Y } _ { t }$
E) $Y _ { t } \times \bar { Y } _ { t }$

Question

Quizplus · Accepted Answer

The IS curve represents the relationship between interest rates and output in the goods market. $\tilde { Y } _ { t }$ is the output gap, calculated as the percentage deviation of current output from potential output, given by $\left( Y _ { t } - \bar { Y } _ { t } \right) / \bar { Y } _ { t }$.

In the IS Curve Y~t\tilde { Y } _ { t }Y~t​

In the IS Curve $\tilde { Y } _ { t }$