Suppose that actual output is $120 billion and potential output is $156 billion. What is the output gap in
this situation?
The output at the equilibrium level would be $120 billion while the potential production is $156 billion, thus creating a gap of $36 billion.
$156 – $120 = $36 billion.
Based on my above calculations, would you expect the unemployment rate to be higher than full employment or lower than full employment? Explain.
