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

Question

Quizplus · Accepted Answer

The output gap is the difference between actual output and potential output. Maximum employment is achieved when the economy is producing at potential output, so the larger the output gap, the further the economy is from maximum employment. Therefore, the output gap can be used to estimate the extent to which the Fed misses its goal of maximum employment.

The Output Gap Can Be Used to Estimate the Extend