What was the output gap in the US in 1973?

The output gap represents the difference between a country's actual output (real GDP) and its potential output (what the economy could produce at full capacity). In general, when the actual output surpasses potential output, the output gap is positive; conversely, when it falls short, the output gap is negative.

In 1973, the US economy was characterized by strong economic growth and low unemployment rates, resulting in an output that was above potential output. This situation aligns with a positive output gap. Historical data shows that during this period, the economy was operating at a level that led to inflationary pressures, supporting the notion that the economy was growing more than its sustainable capacity.

This context highlights why the positive output gap of +3.0% is the correct interpretation for the US in 1973. Factors such as increased consumer spending, fiscal policy, and other economic stimuli contributed to this outcome during that time frame. Understanding the economic conditions of that era can provide insights into why a positive output gap was observed.