Output Gap

DEFINITION of 'Output Gap'

An economic measure of the difference between the actual output of an economy and the output it could achieve when it is most efficient, or at full capacity. There are two types of output gaps: positive and negative. A positive output gap occurs when actual output is more than the full-capacity output. Negative output gap occurs when actual output is less than full-capacity output.

BREAKING DOWN 'Output Gap'

The measure compares the actual GDP (output) of an economy and the potential GDP (efficient output). When the economy is running an output gap, either positive or negative, it is thought to be running at an inefficient rate as the economy is either overworking or underworking its resources. Economic theory suggests that positive output gap will lead to inflation as production and labor costs rise.

RELATED TERMS
  1. Economy

    Economy is the large set of inter-related economic production ...
  2. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced ...
  3. Inflation

    The rate at which the general level of prices for goods and services ...
  4. Aggregate Capacity Management

    The process of planning and managing the overall capacity of ...
  5. Gross National Product - GNP

    Gross national product (GNP) is an economic statistic that includes ...
  6. Economics

    A social science that studies how individuals, governments, firms ...
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  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. Retirement

    Economic Indicators To Know

    The economy has a large impact on the market. Learn how to interpret the most important reports.
  4. Investing News

    Is the White House too Optimistic on the Economy?

    Are the White House's economic growth projections for 2016 and 2017 realistic or too optimistic?
  5. Economics

    The Truth about Productivity

    Why has labor market productivity slowed sharply around the world in recent years? One of the greatest economic mysteries out there.
  6. Economics

    The Delicate Dance of Inflation and GDP

    Investors must understand inflation and gross domestic product, or GDP, well enough to make decisions without becoming buried in data.
  7. Economics

    Explaining Economic Indicators

    Investors use economic indicators to gauge investment opportunities and judge the overall health of an economy.
  8. Economics

    Economic Indicators: Reading Between the Lines

    On the surface, economic indicators are sending mixed signals, but what's brewing beneath the surface?
  9. Fundamental Analysis

    How Globalization Affects Developed Countries

    The increase in communications technology has companies competing in a global market.
  10. Economics

    3 Economic Challenges Russia Faces in 2016

    Learn about the three largest challenges facing the Russian economy in 2016. How will low oil prices and high inflation impact the Russian economy?
RELATED FAQS
  1. What is GDP and why is it so important to investors?

    The gross domestic product (GDP) is one of the primary indicators used to gauge the health of a country's economy. It represents ... Read Full Answer >>
  2. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
  3. Is Russia a developed country?

    Though it once reigned alongside the United States as a world superpower, Russia is not classified as a developed country ... Read Full Answer >>
  4. Is North Korea a developed country?

    North Korea is one of the poorest and least developed countries in the world. It is far from a developed country. Because ... Read Full Answer >>
  5. Is Mexico a developed country?

    As of 2015, Mexico is not a developed country. However, it beats the majority of its peers in the developing world on most ... Read Full Answer >>
  6. Is China a developed country?

    Despite having the world's second-largest economy and third-largest military, China is still, as of 2015, not classified ... Read Full Answer >>
Hot Definitions
  1. Short Selling

    Short selling is the sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is ...
  2. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  3. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  4. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  5. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  6. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center