Output Gap

What is an 'Output Gap'

An output gap is 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. Economics

    A social science that studies how individuals, governments, firms ...
  6. Gross National Product - GNP

    Gross national product (GNP) is an economic statistic that includes ...
Related Articles
  1. Investing News

    3 PIMCO Thoughts on Central Banks in 2016

    Learn about PIMCO's outlook for central banks in Europe and the United Kingdom in 2016. Find out how inflation and GDP growth will impact monetary policy.
  2. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  3. Options & Futures

    Explaining The World Through Macroeconomic Analysis

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

    Economic Indicators To Know

    The economy has a large impact on the market. Learn how to interpret the most important reports.
  5. Forex

    Global Transportation: Exploring Revenue Trends and Fundamentals

    Explore the geographic trends in global transportation sector revenues, and discover the factors that influence revenue contribution and growth in this area.
  6. Investing

    Why This Finance Pro Sees Deflating Bubbles

    Here's why this finance expert believes not only that there are bubbles but that they are deflating.
  7. Term

    Why Investors and Economists Care About GDP

    Gross Domestic Product is the total dollar value of all goods an economy produces over a given time.
  8. Term

    The Functional Difference Between GDP and GNP

    Both gross domestic product and gross national product try to measure the market value of all goods and services an economy produces.
  9. Investing

    Is the Chinese Economy Backed into a Corner?

    China has two options in response to a slowing economy. Are either of them viable?
  10. Products and Investments

    Where Does the Economy Go from Here?

    Is the economy headed in the right direction or toward doom and gloom?
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 Answer >>
  2. What is the difference between a capital good and a consumer good?

    Learn to differentiate between capital goods and consumer goods, and see why capital goods require savings and investment ... Read Answer >>
  3. 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 Answer >>
  4. Is Russia a developed country?

    Learn why Russia, despite once reigning alongside the United States as a world superpower, does not qualify as a developed ... Read Answer >>
  5. Is North Korea a developed country?

    Understand what makes a developed country, and learn why North Korea is about as far from reaching that status as a country ... Read Answer >>
  6. Is Mexico a developed country?

    Understand what makes a country a developed country, and learn why Mexico is getting closer to developed status but is not ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center