Output gap

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Economic measures for the difference between the actual output of an economy and the output it could achieve when it is most effective, 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 full capacity output. The negative output gap occurs when actual output is less than full capacity output.

Output gap
This measure compares the actual GDP (output) of an economy and potential GDP (efficient output). When the economy is the output gap, either positive or negative, is thought to work in an inefficient rate as the economy is either overworking or underworking their resources. Economic theory suggests that positive output gap will lead to inflation, production and labor costs rise.