The amount by which the actual output of an economy falls short of its potential output.
- By 1997, with the U.S. economy nearing full capacity and Canada still experiencing a significant output gap, monetary policy in Canada became far looser than in the United States.
- Because of excess capacity and elevated unemployment - what economists call the output gap - plenty of slack still remains in the economy.
- The liquidity trap is defined as the combination of a large output gap calling for monetary stimulus, with zero interest rate blocking monetary stimulus.
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