Practise interpreting output gap diagrams and data to link positive or negative gaps with unemployment, inflation, tax revenue and business activity.
In Q1 2019 Brazil's output gap was estimated to be equal to -5.6% of GDP.
Explain one likely impact of a negative output gap on Brazil's economy.
Knowledge 1, Analysis 2, Application 1
Quantitative Skill assessed
QS2: Calculate, use and understand percentages, percentage
changes and percentage point changes
QS9: Interpret, apply and analyse information in written, graphical and tabular forms
Knowledge and Analysis 1 knowledge mark for understanding of a negative output gap, e.g.: when actual GDP is less than potential GDP (this may be shown via an accurately drawn/labelled diagram)
OR
1 knowledge mark for identification of one characteristic of a negative output gap (1)
Up to 2 analysis marks for development of the identified impact, e.g.:
- The government is likely to have a budget deficit (1) as government spending on means-tested/unemployment benefits is high (1) and tax revenue, e.g. income tax, is relatively low (1)
- There is likely to be unemployment (1) as some of the
labour factor of production is unemployed (1) leading to spare capacity (1)
- Low inflation/disinflation/deflation (1) as there is low cost- push inflationary pressure (1) because high levels of spare
labour reduce wage rates (1)
- Low inflation/disinflation/deflation (1) as there is less
demand-pull inflationary pressure (1) because AD is
Application
1 mark for appropriate reference to Brazil or another economy, e.g.:
- The size of Brazil's negative output gap was 5.6% of its GDP
in Q1 2019 (1)