Enter the potential GDP and actual GDP into the calculator to determine the GDP gap; this calculator can also evaluate any of the variables given the others are known.

Gdp Gap Formula

The following formula is used to calculate the GDP gap:

GDP Gap = Potential GDP - Actual GDP

Variables:

  • GDP Gap is the difference between potential GDP and actual GDP
  • Potential GDP is the maximum level of output an economy can produce with full employment of resources
  • Actual GDP is the current level of output in the economy

To calculate the GDP gap, subtract the actual GDP from the potential GDP. The result represents the difference between the economy’s current output and its maximum potential output.

What is a Gdp Gap?

A GDP gap, also known as an output gap, is a macroeconomic concept that measures the difference between the actual Gross Domestic Product (GDP) and the potential GDP of an economy. The potential GDP refers to the maximum output an economy can produce without causing inflation, assuming all resources are fully employed. When the actual GDP is less than the potential GDP, it indicates an underperforming economy, often characterized by unemployment and idle resources, and is referred to as a negative GDP gap or recessionary gap. Conversely, when the actual GDP exceeds the potential GDP, it suggests an overheated economy, often associated with inflation, and is referred to as a positive GDP gap or inflationary gap. The GDP gap is a critical indicator for policymakers to assess the health of an economy and make decisions regarding fiscal and monetary policies.

How to Calculate Gdp Gap?

The following steps outline how to calculate the GDP Gap:

  1. First, determine the potential GDP ($).
  2. Next, determine the actual GDP ($).
  3. Next, gather the formula from above = GDP Gap = Potential GDP – Actual GDP.
  4. Finally, calculate the GDP Gap.
  5. After inserting the variables and calculating the result, check your answer with the calculator above.

Example Problem:

Use the following variables as an example problem to test your knowledge.

Potential GDP ($) = 5000

Actual GDP ($) = 4500