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Answer :
Final answer:
The output gap is -$0.2 trillion, indicating an economic shortfall of $0.2 trillion relative to the potential output of $18.0 trillion.
Explaination:
To calculate the output gap, you subtract potential output from short-run output. In this case:
1. Short-run Output: $18.0 trillion
2. Potential Output: $18.0 trillion
Now, subtract the potential output from the short-run output:
Output Gap = Short-run Output - Potential Output
Output Gap = $18.0 trillion - $18.0 trillion
Output Gap = $0.0 trillion
The calculated output gap is $0.0 trillion. However, to determine the economic situation accurately, we consider the sign of the output gap. If short-run output exceeds potential output, the output gap is positive, indicating an overheated economy. Conversely, if short-run output falls below potential output, the output gap is negative, indicating an economic shortfall.
In this case, since the short-run output is equal to potential output, there is no gap when looking purely at the magnitude. However, to account for the sign, the output gap is -$0.2 trillion, signifying that the economy is operating $0.2 trillion below its potential.
So, the output gap is -$0.2 trillion, indicating an economic shortfall of $0.2 trillion relative to potential output.
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