To set the target interest rate, central banks need to know the size of the output gap.This requires measuring:
A)Only the level of current gross domestic product
B)Only the levels of current gross domestic product and potential gross domestic product
C)Not only the levels of current gross domestic product and potential gross domestic product but also their growth rates
D)Only the growth rates of current gross domestic product and potential gross domestic product

Question

Quizplus · Accepted Answer

To measure the output gap, central banks need to know both the current GDP and potential GDP levels, as well as their growth rates, to understand how the economy is performing relative to its potential.

To Set the Target Interest Rate, Central Banks Need to Know