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Biden’s ‘go big’ stimulus has kicked off a huge debate about just how big a hole the pandemic punched in the economy

President Joe Biden

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Congressional Democrats and President Joe Biden are betting there’s a bigger hole in the US economy than some government models suggest.

The main conflict around Biden’s $1.9 trillion stimulus plan has to do with a fairly simple concept: the output gap. That gauge measures the difference between actual output and the maximum potential output generated by an economy. During a recession, it’s a popular metric for judging how much more an economy can rebound before overheating.

Positive output gaps — in which actual GDP exceeds the estimated maximum — tend to fuel inflation due to strong demand details ⇒

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