Output Gap

Just keep in mind that the definition of the gap is trend GBP minus actual GBP. When there is a positive output gap you are below trend.
It is like your bank calling you and saying you have a nice positive overdraft of 1000$. It is a negative thing stated as a positive figure. The positive overdraft is a negative balance. The negative overdraft if a positive balance ( - ) x ( - ) = ( +)
Just a bit twisted…
 
(of course you don’t talk about negative overdrafts. I am just trying some silly comparisons)
 
Bear - let me tell you i was going insane with this topic too when i first came across it. I dont have the book on me but the way it was described, common sense, and even the formula (again, if i recall correctly) all made it seem like actual GDP - trend.
 
Yeap it looks like the CFA definition is not the same as the one we found on specialised websites.
Because my brain was blank on the topic and I am more open to new definitions in English than you guys (no preset as I am not a native speaker) I could easily take it as it was presented
 
Output gap = Long term / Potential GDP - Actual GDP
During recessions actual GDP will be < potential, resulting in positive output gap.
Remember the goal is to write and pass these exams
 
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