The output gap can be used to estimate the extent 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 measures the difference between actual economic output and potential output, which is closely related to employment levels. A positive output gap indicates an economy operating above its potential, often leading to inflationary pressures, while a negative gap suggests underutilization of resources, including labor, indicating less than maximum employment.

The Output Gap Can Be Used to Estimate the Extent