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Explain what is meant by an "output gap" and using recent data discuss the likely size of the UK's current output gap, stating your reasons and backing up these reasons, forecast the likely size of the UKoutput gap this time next year.
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Explain what is meant by an "output gap" and using recent data discuss the likely size of the UK's current output gap, stating your reasons and backing up these reasons, forecast the likely size of the UK output gap this time next year. The output gap is the discrepancy between the economy's real output and the possible level of production that can be sustained with current labour, capital, and technology without placing persistent upward pressure over time on the average price of goods and services. This upward pressure would ultimately lead to inflation, which, along with the risk of inflation, promotes particular types of spending and investment decisions. The output gap may additionally be referred to as spare or excess capacity; the gap is positive, and known as excess demand, when actual output surpasses the economy's potential, while negative, known as excess supply, when actual output is below potential output. Pressure...
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