1. What is GDP Gap?

The GDP gap measures the difference between an economy's actual and potential output. In Australia, it helps assess whether the economy is operating below or above its full capacity.

2. How Does the Calculator Work?

The calculator uses the GDP gap formula:

Where:

• \( Potential \) — The maximum sustainable output of the economy (AUD)
• \( Actual \) — The current output of the economy (AUD)

Explanation: A positive gap indicates the economy is underperforming, while a negative gap suggests it's overheating.

3. Importance of GDP Gap Calculation

Details: The GDP gap is crucial for policymakers to determine appropriate fiscal and monetary policies. It helps identify inflationary pressures or economic slack in the Australian economy.

4. Using the Calculator

Tips: Enter both potential and actual GDP in Australian dollars (AUD). Values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's a normal GDP gap for Australia?
A: Typically, a gap within ±2% is considered normal for developed economies like Australia.

Q2: How is potential GDP estimated?
A: Potential GDP is estimated using statistical techniques that account for labor, capital, and productivity trends.

Q3: What does a positive gap indicate?
A: A positive gap suggests the economy is producing below its potential, indicating unused resources.

Q4: What does a negative gap indicate?
A: A negative gap suggests the economy is overheating, which may lead to inflation.

Q5: How often is GDP gap calculated in Australia?
A: The Reserve Bank of Australia and Treasury monitor it quarterly, with annual revisions.