output gap

The GDP gap or the output gap is the difference between actual GDP and potential GDP or potential output. The calculation for the output gap is Y-Y* where Y is actual output and Y* is potential output or the natural level of output. If this calculation yields a positive number it is called an expansionary gap and indicates an economy in expansion; if the calculation yields a negative number it is called a recessionary gap and indicates an economy in recession.
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The difference between the actual and potential levels of output of an economy, expressed as a percentage of potential output. Potential output is the level of output that can be achieved when the factors of production are utilised at non-inflationary levels.