In marketplaces and elsewhere in culture, there are many gaps. We deal with information gaps. Individuals and institutions seek to fill in holes in their knowledge by gathering additional information and evaluating what they have accumulated.
Politicians demonstrate credibility and leadership gaps. The US fiscal deficit disaster situation is merely one of many examples.
One very important gap discussed by the International Monetary Fund, the Federal Reserve Board, and other economic players is the output gap. Why not investigate that topic? The Fed and other key players make key decisions significantly influenced by their views on this measure.
Output gap estimates about any given current and future output gap situation (and therefore to some extent even regarding past gaps) probably are much less reliable than the Fed’s orations on the subject would have its audiences believe. The Fed is making decisions that are significantly based on very conjectural resource slack information.
Moreover, some evidence indicates the US output gap is less extreme than the Fed believes. What follows? The Fed’s sustained effort to pin interest rates near the floor (and thus beneath even low inflation levels) as well as its past money printing (quantitative easing) adventures fought to ignite and sustain economic recovery. However, if it has overestimated the US output gap significantly, its policies have increased the risk of creating not only inflation (however long it may take for that to appear), but also more inflation than it and many others see as desirable.
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