Output gap
Definition. An output gap is the difference between an economys actual real output and its potential output, the level consistent with full employment of resources. A negative output gap means actual output is below potential, indicating spare capacity, while a positive output gap means actual output exceeds the sustainable level.
A negative output gap is associated with demand deficient unemployment, while a positive gap signals an overheating economy with inflationary pressure as resources are stretched beyond their sustainable use.
This term belongs to Economic Growth in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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