Enter the actual output and potential output into the calculator to determine the output gap. This calculator can also evaluate any of the variables given the others are known.
Output Gap Formula
The following formula is used to calculate the output gap. Variables:
OG = (Y - Y*) / Y*
- OG is the output gap
- Y is the actual output
- Y* is the potential output
To calculate the output gap, subtract the potential output from the actual output. Then, divide the result by the potential output. The result is the output gap, which measures the difference between a country’s actual and potential economic output.
What is an Output Gap?
An output gap is an economic indicator that measures the difference between the actual output of an economy and its potential output. Potential output refers to the maximum amount of goods and services an economy can produce when it is fully utilizing all available resources, including labor and capital. If the actual output is less than the potential output, it’s referred to as a negative output gap, indicating underperformance or recession. Conversely, if the actual output is greater than the potential output, it’s a positive output gap, indicating overheating or inflationary pressure in the economy.
How to Calculate Output Gap?
The following steps outline how to calculate the Output Gap.
- First, determine the actual output (Y).
- Next, determine the potential output (Y*).
- Next, gather the formula from above = OG = (Y – Y*) / Y*.
- Finally, calculate the Output Gap.
- 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.
Actual output (Y) = 500
Potential output (Y*) = 550
