CandleFocus

GDP Gap

Candlefocus Editor
A GDP Gap is a type of economic measure that evaluates an economy's actual performance relative to its potential performance. It is primarily used to measure the difference between an economy's real Gross Domestic Product (GDP) and the Potential GDP (PGDP) of the economy. The GDP Gap can be either positive or negative and indicates the level of output gap for the economy.

When the actual GDP is less than the Potential GDP, it means that the economy is not performing up to its fullest capacity. This is known as a negative output gap and is a common phenomenon immediately following economic crisis or financial shocks. This can also be an indicator of an economy's underperformance from an economic standpoint. On the other hand, a positive output gap can be an alarming sign as it indicates an economy that is expanding faster than its potential and is at risk of inflation.

The GDP Gap can also be used to compare the real GDP of two different countries. This is done by calculating the difference in their respective GDP numbers and the percentage difference between the two. This helps economists to understand the relative economic performance of two countries and can serve as an indicator of the level of economic stability and progress in each of the countries.

Overall, the GDP Gap is a valuable tool for economists as it assists in evaluating an economy's overall performance as well as the extent of its growth. It can also be a useful indicator of potential inflationary risks and a country's current level of economic stability.

Glossary Index