# GDP gap

The

or theGDP gapoutput gap is the difference betweenpotential GDP andactual GDP or actual output. The calculation for the output gap is Y-Y* where Y is potential output and Y* isactual output or the natural level of output. If this calculation yields a positive number it is called a recessionary gap and indicates an economy in expansion; if the calculation yields a negative number it is called a expansionary gap and indicates an economy in recession.The percentage GDP gap is the potential GDP minus the actual GDP divided by the actual GDP. $(potential\; GDP\; -\; actual\; GDP)/actual\; GDP$.

**GDP Gap & Unemployment - Okun's Law**Okun's Law is based on regression analysis of US data that shows a correlation between unemployment and GDP. Okun's law can be stated as: For every 2% increase in potential GDP, the actual employment rate exceeds the natural rate of employment by 1% of the potential GDP.%Output g

This can also be expressed as:

(Y-Y*) / Y*= - β(u-ū)

where:

*Y is actual output*Y* is potential output

*u is actual unemployment

*ū is the natural rate of unemployment

*β is a constant derived from regression show the link between deviations from natural output & natural unemployment.

**External links*** [

*http://www.tutor2u.net/economics/content/topics/macroeconomy/outputgap.htm Tutor2u's description*]

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### Look at other dictionaries:

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