Difficulties Measuring Output Gaps
Study Edexcel Economics output-gap measurement questions by explaining why potential output is estimated and why data, revisions and methods create uncertainty.
- Syllabus
- 2019
- Course
- Economics YEC11
- Level
- AS
Exam points
- Explain that potential output is unobserved and must be estimated from labour, capital and productivity data.
- Evaluate uncertainty because estimates may be revised as information and methods change.
- Recognise that estimates can produce different output-gap sizes or even different signs.
2.3.5.4d - Difficulties of measuring output gaps question 1
[Maximum number: 4]
Using the IMF chart, explain one reason why measuring an economy’s output gap is difficult.
Potential output cannot be directly observed and must be estimated from uncertain labour, capital and productivity data. Estimates may be revised substantially and can even differ in sign.
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