The GDP gap or the output gap is the difference between actual GDP or actual output and potential GDP. The calculation for the output gap is Y–Y where Y is actual output and Y* is potential output. If this calculation yields a positive number it is called an inflationary gap and indicates the growth of aggregate demand is outpacing the growth of aggregate supply—possibly creating inflation; if the calculation yields a negative number it is called a recessionary gap—possibly signifying deflation.
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What is 'GDP Gap'
The forfeited output of a country's economy resulting from the failure to create sufficient jobs for all those willing to work.
Explaining 'GDP Gap'
A GDP gap denotes the amount of production that is irretrievably lost. The potential for higher production levels is wasted because there aren't enough jobs supplied.