Okun Gap

AAA

DEFINITION of 'Okun Gap'

A macroeconomic term that describes the situation when an economy's potential gross domestic product (GDP) differs from its actual gross domestic product. The gap can either be recessionary or inflationary, but will depend on the economy's current state, including levels of inflation and the unemployment rate.

INVESTOPEDIA EXPLAINS 'Okun Gap'

An Okun gap can be expressed in either percentage or absolute terms and will be a measure of how much output, as measured by GDP, the economy produced in a given time period relative to the economy's full-employment level.

Arthur Okun, who is the person credited with discovering Okun's law, among other famous discoveries, was a senior economist at the Counsel of Economic Advisers (CEA) during President Kennedy's term in office and a professor at Yale University.

RELATED TERMS
  1. GDP Gap

    The forfeited output of a country's economy resulting from the ...
  2. Full Employment

    A situation in which all available labor resources are being ...
  3. Inflation

    The rate at which the general level of prices for goods and services ...
  4. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced ...
  5. Okun's Law

    The relationship between an economy's unemployment rate and its ...
  6. Inflationary Gap

    A macroeconomic condition that describes the distance between ...
RELATED FAQS
  1. What is GDP and why is it so important to investors?

    The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents ... Read Full Answer >>
  2. How does the U.S. Bureau of Labor Statistics calculate the unemployment rate published ...

    The unemployment rate is one of the most closely followed indicators, used by businesses, investors and private citizens ... Read Full Answer >>
  3. What are the main risks to the economy of a country that has implemented a policy ...

    The main risk to the economy of a country that has implemented a policy of austerity is the potential for a self-reinforcing, ... Read Full Answer >>
  4. What are some of the key shortcomings of how the U.S. unemployment rate is determined ...

    Each month, the Bureau of Labor Statistics (BLS), a division of the U.S. Department of Labor, announces the unemployment ... Read Full Answer >>
  5. In what manner will a recession likely affect the marginal-propensity-to-save rate ...

    The marginal propensity to save, or MPS, rises in most, though not all, recessions. This makes perfect sense on an individual ... Read Full Answer >>
  6. Why would a country's gross domestic product (GDP) and gross national income (GNI) ...

    A country’s gross domestic product, or GDP, and gross national income, or GNI, are likely to differ considerably because ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Economic Indicators That Do-It-Yourself Investors Should Know

    Understanding these investing tools will put the market in your hands.
  2. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  3. Economics

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  4. Economics

    Explaining Demographics

    Demographics is the study and categorization of people based on factors such as income level, education, gender, race, age, and employment.
  5. Economics

    The Most Likely Outcome For Greece

    After more than five years of a Greek drama, most of us have become fatigued with hearing about Greece’s debt problems, the one issue that won’t go away.
  6. Economics

    How Does a Company Use Raw Materials?

    Raw materials are the basic components of a finished product.
  7. Economics

    Understanding Austerity

    Austerity is an economic term describing government measures to reduce and eliminate budget deficits.
  8. Economics

    Good Economic News The Cynics May Be Missing

    Headline data about the U.S. economy hasn’t been great, but the economy is actually stronger than it’s getting credit for.
  9. Economics

    10 Most Influential Chinese Companies

    Chinese companies are becoming influential global players. Investopedia provides a list of most influential companies in China.
  10. Personal Finance

    Five Of The Largest Asset Bubbles In History

    The five bubbles discussed here were among the biggest in history; their lessons should be heeded.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!