Former Treasury Secretary Larry Summers recently pointed out that overstimulation risk will far exceed the “output gap” shown in the latest Congressional Budget Office economic projections.
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What is an output gap? Gross Domestic Product measures (or at least tries to) economic growth. Economists also calculate “potential GDP,” which is how much the economy could grow, if every available worker and other resource were fully employed.
Inflation tends to occur when actual GDP exceeds potential GDP because the economy is “running hot.” An output gap is when it goes the other way, with...
