1. What is Negative GDP Gap?

The negative GDP gap represents the difference between actual GDP and potential GDP when actual GDP is below potential GDP. It indicates an underperforming economy with unused resources.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

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

Explanation: When the result is negative, it means the economy is producing below its potential capacity.

3. Importance of GDP Gap Calculation

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

4. Using the Calculator

Tips: Enter both actual and potential GDP values in the same currency units. The calculator will determine if there's a negative gap.

5. Frequently Asked Questions (FAQ)

Q1: What does a negative GDP gap indicate?
A: A negative gap suggests the economy is underperforming, with unemployment likely above the natural rate.

Q2: What's the difference between negative and positive gaps?
A: Negative gaps indicate recessionary conditions, while positive gaps suggest inflationary pressures.

Q3: How is potential GDP determined?
A: Potential GDP is estimated using factors like labor force growth, capital accumulation, and productivity trends.

Q4: What are typical GDP gap values?
A: In healthy economies, the gap is typically ±3% of potential GDP. Larger negative gaps indicate deeper recessions.

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