Output Gap and Inflation

Your 'output' gap issue reminds me of California's deregulated electricity market and how pricing works.

With demand either low or supplied from overseas at lower prices, inflation can be kept low.

But, consider what the 'output gap' in the US represents? I'm not sure what the costs of bringing it onboard would be. Clearly, Obamanomics is raising the cost of labor (healthcare, union support, etc), reducing the returns to capital (higher taxes), etc.

So, if current cost are say $1.00 for a basket of goods; and, by bringing on additional supply (one tried not to think of the healthcare costs and supply issue), let's say the same basket of goods only goes to $1.25. Isn't that substantial inflation?

Not to say, as in the oil market, people don't still sell oil below its clearing price; but, most don't. The cost of that last barrel is what determines the cost of all the lesser barrels.

We've also seen that the scrapping of what would have been sound used cars before cash-for-clunkers is driving up the cost of those used cars that are available. Of course, this was the goal too - try to get demand up for new cars to try and keep bailing out GM and Chrysler.

But, let's see. You can't find a used car for $10,000, so you opt for a new one for $25,000. Could this be inflationary?