GDP Gap Calculator
Calculate the GDP gap, which measures the difference between actual GDP and potential GDP. The output gap indicates whether the economy is operating above or below its full potential.
GDP Data Input
GDP Gap Results
GDP Gap:
$0.00
Output Gap:
0.00%
Gap Type:
N/A
Economic Implications
Inflation Pressure:
N/A
Unemployment Impact:
N/A
Policy Recommendation:
N/A
Business Cycle Analysis
Economic Phase:
N/A
Capacity Utilization:
0.00%
Slack Measurement:
0.00%
Understanding the GDP Gap
The GDP gap, also known as the output gap, measures the difference between actual GDP and potential GDP. It indicates whether an economy is operating above or below its sustainable long-term level of output.
GDP Gap Formula
GDP Gap Calculation
- GDP Gap = Actual GDP - Potential GDP
- Output Gap = (GDP Gap / Potential GDP) × 100
- Positive gap = Above potential (expansion)
- Negative gap = Below potential (recession)
Potential GDP
- Maximum sustainable output
- Full employment level
- No inflationary pressures
- Long-run economic capacity
Types of GDP Gaps
Expansionary vs Contractionary Gaps
Expansionary Gap
- Actual GDP > Potential GDP
- Positive output gap
- Economy operating above capacity
- May lead to inflation
- High demand, low unemployment
Contractionary Gap
- Actual GDP < Potential GDP
- Negative output gap
- Economy operating below capacity
- May lead to recession
- High unemployment, slack demand
Economic Implications
| Gap Type | Inflation | Unemployment | Policy Response |
|---|---|---|---|
| Expansionary (+) | Rising | Low | Contractionary |
| Contractionary (-) | Falling/Low | High | Expansionary |
| Zero Gap | Stable | Natural rate | Neutral |
Business Cycle Phases
Expansion Phase
- GDP growing above trend
- Positive output gap
- Increasing employment
- Rising asset prices
- Building inflationary pressures
Contraction Phase
- GDP growing below trend
- Negative output gap
- Rising unemployment
- Falling asset prices
- Deflationary pressures
Policy Applications
Monetary Policy
- Interest rate decisions
- Inflation targeting
- Quantitative easing
- Forward guidance
Fiscal Policy
- Government spending
- Tax adjustments
- Automatic stabilizers
- Discretionary measures
Okun's Law Connection
Okun's Law
- Relates output gap to unemployment
- 1% output gap ˜ 0.5% unemployment change
- u - u* = -ß(y - y*)/y*
- u = unemployment rate
- y = actual output, y* = potential output
Phillips Curve
- Relates inflation to unemployment
- Lower unemployment ? higher inflation
- p = p? - ß(u - u?)
- p = inflation, p? = expected inflation
- u? = natural rate of unemployment
Key Takeaways for GDP Gap Calculator
- The GDP gap measures the difference between actual GDP and potential GDP
- A positive gap indicates the economy is operating above its sustainable capacity
- A negative gap indicates the economy is operating below its potential
- The output gap percentage shows the magnitude of economic slack or overheating
- Central banks use the GDP gap to guide monetary policy decisions
- Expansionary gaps may lead to inflation, while contractionary gaps may increase unemployment
- The calculator helps assess whether the economy needs stimulus or restraint
- Understanding the GDP gap is crucial for macroeconomic analysis and policy-making