1. What is GDP Gap?

The GDP gap measures the difference between an economy's actual and potential output. It indicates whether an economy is underperforming (negative gap) or overperforming (positive gap) relative to its potential.

2. How Does the Calculator Work?

The calculator uses the GDP Gap formula:

Where:

• Potential GDP — The maximum sustainable output of an economy
• Actual GDP — The real economic output during a period

Explanation: The formula calculates the percentage difference between what an economy could produce and what it actually produces.

3. Importance of GDP Gap Calculation

Details: The GDP gap helps policymakers understand economic performance, identify recessions or overheated economies, and guide fiscal and monetary policy decisions.

4. Using the Calculator

Tips: Enter both Potential GDP and Actual GDP in monetary terms (same currency). The calculator will output the gap as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What does a negative GDP gap mean?
A: A negative gap indicates the economy is producing below its potential, often signaling unemployment and unused resources.

Q2: What does a positive GDP gap mean?
A: A positive gap suggests the economy is overperforming, which can lead to inflationary pressures.

Q3: How is potential GDP determined?
A: Potential GDP is estimated using factors like labor force, capital stock, and technological progress.

Q4: What's a normal GDP gap?
A: In stable economies, the gap typically ranges between -3% to +3%. Larger gaps indicate significant economic imbalances.

Q5: How often should GDP gap be calculated?
A: Economists typically calculate it quarterly when new GDP data becomes available.