Question:
Which phase of the business cycle is most likely to be characterized by an increasing positive output gap?
(1) peak
(2) recession
(3) expansion
(4) trough
(5) contraction
Correct Answer:
(3)
Answer Explanation:
An output gap is the difference between an economy’s actual GDP and its potential GDP. A “positive” output gap means the economy is producing beyond its sustainable full-employment level. This gap actively increases (widens) during an aggressive economic “expansion” (or boom) phase before it eventually tops out at the peak.
Topic: Macroeconomics Year: 2019
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