9.2.2—Output gaps

The output gap is the difference between actual real GDP and estimated potential GDP, often expressed as a percentage of potential. A negative gap indicates spare capacity; a positive gap indicates output above sustainable capacity.

Potential output is not directly observed, so the gap is an estimate and can be revised. A negative gap often accompanies unemployment and weak inflation pressure; a positive gap may accompany bottlenecks and demand-pull inflation.

If actual GDP is 980 and potential GDP is 1,000, the output gap is −2% of potential. The number is not a precise count of unemployed people.

An output gap is not simply the GDP growth rate, and a zero estimated gap does not prove every resource is fully employed.