DEFINITION of 'Production Gap'

An economic analytical term denoting the degree of relative deviation of actual industrial production from its perceived potential production. The production gap is a measure of how short domestic industrial production is from its potential.

BREAKING DOWN 'Production Gap'

This measurement can be used in conjunction with gaps in gross domestic product (GDP) and unemployment to analyze the economy at large. Discrepancies between the three gaps may indicate temporal economic factors that lie outside the norm.

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