Macroeconomics

‭The following imagined graph illustrates the concept of output gaps over time:‬

‭Y-axis (real GDP):‬ ‭The vertical axis represents GDP‬‭in real terms. It shows the level of economic output.‬ ‭X-axis‬‭(time):‬ ‭The‬‭horizontal‬‭axis‬‭represents‬‭time,‬‭typically‬‭in‬‭years‬‭or‬‭quarters,‬‭allowing‬‭us‬‭to‬‭observe‬ ‭changes in GDP over time.‬ ‭Two Lines: Actual GDP and Potential GDP‬ ‭Actual‬ ‭GDP‬ ‭line:‬ ‭This‬ ‭line‬ ‭represents‬ ‭the‬ ‭actual‬‭level‬‭of‬‭economic‬‭output,‬‭which‬‭can‬‭fluctuate‬‭due‬‭to‬ ‭various economic factors and business cycle phases.‬ ‭Potential‬ ‭GDP‬ ‭line:‬ ‭This‬ ‭dashed‬ ‭green‬ ‭line‬ ‭represents‬ ‭the‬ ‭economy's‬ ‭potential‬ ‭output,‬ ‭reflecting‬ ‭its‬ ‭maximum sustainable level of production.‬ ‭Output Gap Area:‬ ‭●‬ ‭The‬ ‭area‬ ‭between‬ ‭the‬ ‭actual‬ ‭GDP‬ ‭line‬ ‭and‬‭the‬‭potential‬‭GDP‬‭line‬‭on‬‭the‬‭graph‬‭represents‬‭the‬ ‭output gap.‬ ‭●‬ ‭When‬‭the‬‭actual‬‭GDP‬‭line‬‭is‬‭above‬‭the‬‭potential‬‭GDP‬‭line,‬‭the‬‭output‬‭gap‬‭is‬‭positive‬‭(indicating‬ ‭overutilization).‬ ‭●‬ ‭When‬‭the‬‭actual‬‭GDP‬‭line‬‭is‬‭below‬‭the‬‭potential‬‭GDP‬‭line,‬‭the‬‭output‬‭gap‬‭is‬‭negative‬‭(indicating‬ ‭underutilization).‬

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