An economy is has an output gap of 2.5% in Marchand an output gap of 1.5% in April. We can say that in March ______________ and in April _________________.firms and machines are underutilised; firms and machines are still underutilised.firms and machines are underutilised; firms and machines are working overtime.firms and machines are working overtime; firms and machines are still working overtime.firms and machines are working overtime; firms and machines are underutilised.
Question
An economy is has an output gap of 2.5% in Marchand an output gap of 1.5% in April. We can say that in March ______________ and in April _________________.firms and machines are underutilised; firms and machines are still underutilised.firms and machines are underutilised; firms and machines are working overtime.firms and machines are working overtime; firms and machines are still working overtime.firms and machines are working overtime; firms and machines are underutilised.
Solution
The correct answer is: in March firms and machines are underutilised; in April firms and machines are still underutilised.
Explanation: An output gap is a measure of the difference between the actual output of an economy and the maximum potential output of the economy expressed as a percentage of gross domestic product (GDP). A positive output gap indicates that the actual output is more than the potential output and suggests that the economy is overheating, while a negative output gap indicates that the actual output is less than the potential output, suggesting underutilization of resources. In this case, both in March and April, the output gap is positive, indicating underutilization of resources, including firms and machines. However, the output gap decreased from March to April, indicating that the economy is moving closer to its potential output.
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